Funds can hedge currency risk

IF THE thought of extra charges and currency fears put you off buying overseas household names directly, you might want to consider investment funds that hold them.

These still carry currency risk, but some use a strategy known as ‘hedging’ to keep it in check.

The principle of hedging is simple. It is a way of managing risk by taking an opposite position in something related to the risk you are holding in order to offset it. Life insurance is a way we ‘hedge’ the risk of a major earner in our family being unable to provide for us. A fund manager might use a financial instrument known as an ‘option’ so they can mitigate the risk of any currency movement having an adverse impact on the portfolio they manage.

James Carthew, head of investment companies at QuotedData, likes Polar Capital Technology for those who believe the recent slump in tech company shares is temporary. Its biggest holdings include Microsoft, Apple, Alphabet, Facebook’s parent company Meta, and graphics giant NVIDIA. Shares in Polar Capital Technology have fallen 11 per cent in the last six months, but profits are up 90 per cent overall in the past three years.

A less racy tech option might be Alliance Trust, which has exposure to Alphabet, Visa, Microsoft, Amazon and Facebook. But they only account for 15 per cent of its portfolio. Ryan Hughes, head of investment research at AJ Bell, picks investment trust Fidelity European for access to European brands. It is up 33 per cent over three years.