Get your overseas funds ready for Brexit as the pound prepares to take centre stage

The deadline to complete a Brexit deal by the end of the year is edging closer. Investors should be making plans on where to put their savings – and making the right call on currency could make a huge difference to returns.

Since the Brexit referendum the pound has fallen from $1.50 to $1.25, a 17pc decline.

Investors who buy funds sometimes have the option to shield their investments from currency movements through “hedged” share classes. These cancel out the exposure to the local currency of the underlying investments by “hedging” the money back into pounds.

When the pound rises, investors in these funds make better returns but if it falls they lose out. The opposite is true for an “unhedged” fund, which provides full exposure to both the currency and the underlying assets of an overseas market.

Rob Morgan of Charles Stanley, a fund shop, said over the past few years a weaker pound had significantly reduced returns for British investors who used hedged units for their overseas funds. If negotiations prove difficult investors should own unhedged versions of their funds, which will provide better returns if the pound falls. Adrian Lowcock of Willis Owen, a rival firm, warned that currencies could be volatile and might be a bigger determinant of a portfolio’s performance than the companies it invested in. If sterling appreciates on news of a Brexit deal, hedged funds will come into play. However, the trading costs in such funds can be higher and eat into any gains, so the currency movement must be large enough to make it worthwhile. Sam Dickens of IG, the trading firm, said he expected Britain and the EU to “hash out a deal” before the end of the year. However, Mr Lowcock warned that predicting currency movements was notoriously difficult and that

Fall in the pound against the dollar since the Brexit referendum most fund managers avoided making such calls.

There are other factors to consider as well. Although Brexit is a big issue at home, it does not have much impact on other currencies.

The American presidential election in November, for example, is likely to be a much larger factor for the dollar.

Mr Dickens added that investors could change their mind on the pound over factors other than Brexit. Recently, the British currency has risen as investors have started to take on more risk, moving away from safe havens such as the dollar and the yen.

“If the stock market rally fails to be sustained, the pound could come under pressure again,” he said.

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