How the ster­ling ef­fect has boosted your gains from over­seas stocks

The Daily Telegraph - Your Money - - FRONT PAGE - James Con­ning­ton

The dra­matic fall in the value of the pound since the Brexit vote has boosted savers’ re­turns from in­vest­ments in for­eign mar­kets be­cause the dol­lars and eu­ros that com­pa­nies earn over­seas are now worth more in ster­ling terms.

This may have dis­torted Bri­tish in­vestors’ view of how for­eign mar­kets have ac­tu­ally per­formed: a boost from the de­pre­ci­a­tion of ster­ling could have masked poor per­for­mance from the ac­tual as­sets.

The chart shows the dif­fer­ences in re­turns for in­vestors in the US and Euro­pean mar­kets ac­cord­ing to whether they in­vested in pounds, dol­lars or eu­ros.

Over the past two years the S&P 500 in­dex of the largest Amer­i­can com­pa­nies has re­turned 42pc to a ster­ling in­vestor, ac­cord­ing to FE Trust­net, the in­vest­ment an­a­lyst. Over the same pe­riod the pound fell from more than $1.50 to a low of around $1.20, be­fore re­cov­er­ing to $1.32. In US dol­lars, the S&P 500 has still per­formed im­pres­sively, gain­ing 27pc in two years.

In Europe, the gulf be­tween re­turns in ster­ling and re­turns in eu­ros has been more dra­matic. Over the past two years, the Euro Stoxx 50 in­dex has re­turned 40pc in ster­ling terms, com­pared with 15pc in eu­ros.

The dis­par­ity is greater in the case of Europe be­cause, while the pound has re­cov­ered some­what against the dol­lar re­cently, no such re­cov­ery has taken place against the euro. In two years it has fallen from €1.42 to to­day’s rate of €1.13, slightly above its re­cent low of €1.09.

The Euro­pean mar­ket’s re­cov­ery from the fi­nan­cial cri­sis has lagged be­hind the US, and growth has been far slower. How­ever, Euro­pean shares are now com­par­a­tively cheap.

Ac­cord­ing to a global sur­vey of fund managers by Bank of Amer­ica Mer­rill Lynch, the eu­ro­zone is, after banks, the sec­tor about which pro­fes­sional in­vestors have most dra­mat­i­cally turned op­ti­mistic rel­a­tive to the past 15 years.

The great­est dis­par­ity be­tween ster­ling and lo­cal cur­rency re­turns is seen in Ja­panese shares. Japan’s Topix in­dex has gained 44pc in ster­ling terms, com­pared with just 15pc for a lo­cal in­vestor in Ja­panese yen.

Japan has strug­gled to es­cape the de­fla­tion that fol­lowed the col­lapse of an as­set bub­ble in 1992. Now, a greater de­gree of po­lit­i­cal sta­bil­ity, and the con­tin­u­a­tion of the eco­nomic re­cov­ery pro­gramme in­sti­tuted by Shinzo Abe, Japan’s prime min­is­ter, are giv­ing in­vestors hope.

As in Europe, the fund managers polled in the Bank of Amer­ica sur­vey are now far more heav­ily in­vested in Japan rel­a­tive to the past 15 years.

Steel­work­ers risk be­ing ex­ploited by fi­nan­cial ad­vis­ers prey­ing on highly valu­able “fi­nal salary” pen­sions, ex­perts are warn­ing. More than 100,000 mem­bers of the Bri­tish Steel scheme, one of Bri­tain’s largest, have un­til next month to choose what hap­pens to their sav­ings after the for­mer spon­sor, Tata Steel, off­loaded the plan as part of a rad­i­cal re­struc­tur­ing.

How­ever, thou­sands of cur­rent and for­mer steel­work­ers have in­stead re­quested to trans­fer out of fi­nal salary ar­range­ments en­tirely.

The most re­cent fig­ures show that

Tata Steel work­ers are said to be under pres­sure to trans­fer their pen­sions

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.