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Adviser Fund Index

Gains from currency swings are a welcome bonus but playing foreign exchange movements is usually not part of funds’ investment strategy, according to Adviser Fund Index panellists.

“The majority of recent global returns were because of currency movements and not because of the fund’s performance,” says Hillary Coghill, chief investment officer at City Asset Management. “Japanese funds, for example, were up last month because the yen has performed so well against sterling.”

Ben Willis, the head of research at Whitechurch Securities and a fellow panellist, agrees. He says currency swings have especially helped his Japanese funds.

“The biggest beneficiaries from currency swings were funds held in the yen and the dollar,” says Mick Gilligan, the head of research at Killik.

Brian Dennehy, the managing director at Dennehy Weller, agrees with his fellow panellists. “Jupiter’s Japan fund, for example, has had a 40 per cent dividend increase.”

The panellists share the same opinion on the yen but their opinions clash on sterling. For example, Gilligan expects sterling to weaken further against the dollar because of the “indebted British economy, the Government’s weak finance, weak consumption and a banking system that has not been resolved.”

He says: “People expecting sterling to become strong have to be extraordinary optimists.”

Coghill is an optimist. “We think sterling is undervalued against the euro.” She expects the pound to appreciate.

Davies says he does “not really take currency swings into consideration when we make investment decisions”.

He says: “We try to avoid currency risks as much as poss- ible because currency performance is something beyond what we can predict.”

Davies says he focuses on long-term strategic asset allocation.

Fellow panellist Willis agrees but adds that he sometimes does actively consider currency effects. “For example, at the moment, we are not very keen on Europe and part of the reason is because of the strong euro.”

Dennehy says: “Currency gains are a bonus and if we get them it is marvellous”. But he says that he would not invest in a certain region because its currency looks promising.

However, he adds, he tries to avoid places where there was “an obvious currency risk”. “We are still not keen on US markets, although US stocks look like fair value,” he says. “People tend to believe that the US is going to come out of the recession first but the risk that the dollar will become weaker is real.”

He says investors who want to benefit from America’s stabilisation would be better turning to Asia because it will be the first region to benefit from this.

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