The global investment trusts most affected by Brexit

2 mins. to read
The global investment trusts most affected by Brexit

It has been a tumultuous period for the pound, with changes in the prospect of a soft or hard Brexit sending sterling sharply higher or lower on the foreign exchanges. This is evident from the GBPUSD exchange rate, which has risen from around 1.288 to 1.334 and then fallen back to 1.296 before recovering again all in the course of the last 30 days. It may not sound much, but these are massive moves and will have a huge impact on the value of your overseas investments.

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The situation is particularly complicated where you hold one or more global investment trusts in your portfolio, as these offer varying levels of non-sterling exposure and will all be affected in different ways.

Whenever the probability of a deal with Brussels increases, the pound tends to strengthen on the foreign exchanges. This has a larger negative impact on the global funds with the highest non-sterling exposure as the value of these overseas holdings is worth less when translated back into pounds. The opposite is also true, with these funds being the biggest beneficiaries each time the prospect of leaving without a deal comes back into play.

Recent research by Stifel has identified the non-UK exposure at the end of February of each of the different investment trusts operating in the global sector. These vary from 100% in the case of Henderson International Income (LON:HINT) right down to 6% for the Independent Investment Trust (LON:IIT).

Funds with the highest non-sterling exposures

The funds with the highest non-sterling exposure are Henderson International Income (LON:HINT) (100%), British Empire (LON:BTEM) (99%), Scottish Mortgage (LON:SMT) (97%), Monks (LON:MNKS) (94%), Mid Wynd International (LON:MWY) (93%), JPMorgan Global Growth & Income (LON:JPGI) (92%), Martin Currie Global Portfolio (LON:MNP) (90%), Murray International (LON:MYI) (90%) and Foreign & Colonial (LON:FCIT) (90%).

At the other end of the scale are Independent Investment Trust (LON:IIT) (6%), Law Debenture Corporation (LON:LWDB) (21%), Lindsell Train (LON:LTI) (21%) and Majedie (LON:MAJE) (22%), with all of the others ranging between 49% and 85%.

Most of these funds do not publish their actual non-sterling exposure on a regular basis, so the analysts have used the geographic analysis of the underlying holdings as a proxy. This should be pretty accurate unless the managers actively hedge their currency risk.

Ability to hedge currencies

The majority of funds operating in the global sector have the ability to hedge currencies, but very few do this on a regular basis, although it is possible that some have adopted a specific policy on Brexit without going public about it.

RIT Capital Partners (LON:RCP) is the only oneto have an active currency overlay strategy. This significantly changes its profile, as at the end of January the fund had a sterling exposure of 51%, whereas its UK geographic weighting was just 6% of NAV.

Another point to bear in mind is that the currency exposure is only one aspect of the fund to consider, as the sensitivity to the value of the pound will also depend on how and where the underlying companies operate. Unfortunately this sort of data isn’t quantified in any meaningful way.

If you own any of these funds it is important to make sure that you are aware of their non-sterling exposure and that you are comfortable with their possible returns in each of the different Brexit scenarios.

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