Apollo Multi Asset Management has removed the currency hedge in its funds because it expects sterling to weaken.
The company says the relative value of currencies against sterling is an important consideration when investing globally. Exchange rates undermine gains made from overseas investment in local currencies when sterling is strong but provide an advantage when it is weak.
Apollo points out that currency trading is a cheap and efficient way to hedge out currency risk. It hedged out much of its dollar exposure against sterling earlier this year through a currency trade but is now fully exposed to the exchange rate.
The firm highlights differences in interest rates as one of the long-term drivers in currency movements. It believes UK interest rates are likely to be lower for longer as the recovery seems to be progressing faster in the US than the UK.
Fund manager Tom McGrath says: “Apollo fund performance could fluctuate and lag in periods of sterling strength but we believe that over the next 18 months we could enjoy the double whammy of a rise in the value of overseas assets and a fall in sterling. This could accelerate our returns as sterling comes under pressure.”