The fund’s aim is to preserve the global purchasing power of your money. It is fully global and will not be constrained by having to invest alongside any index. Portfolio turnover is likely to be low as this is not a super-active trading fund, more one for longer-term strategic investments.
You might suppose the preservation of global purchasing power is not that important and in some ways it rather depends on how much money one has. However, may I suggest that any doubters ask the unfortunate people of Iceland how they feel about their stricken currency – I suspect that, for most of them, foreign holidays will be off the agenda for quite some time.
Unlike many other currency funds, the Schroders fund is fully global and casts its net wider than the major world currencies such as the US dollar, Swiss franc, euro, yen and sterling. Some 25 to 30 years ago, such a restricted mandate would have been perfectly reasonable as there was very little else you would want to buy but the emergence of the developing world is changing all that.
The banking crisis – or more accurately, the Western banking crisis – has meant currencies of the developed world look less attractive on a global scale. The world is turning upside down and no longer will the developed world be able to do exactly what it wants. The economies of nations such as China, India and Russia look stronger on a long-term view and their currencies should inexorably benefit as a result. Consequently, the Schroders fund will be putting money into Asian and emerging market currencies where it sees fit.
Do not make the mistake of regarding this as a “cash” fund – it will not necessarily show a consistent return in all conditions. Returns are likely to be lumpy because that is the nature of currency market – a currency can stay overvalued or undervalued for a long time but when it moves it tends to happen suddenly. Investors can make – or lose – a lot of money depending on which side of the move they are on, which is why it is important to invest with people who know what they are doing.
The Schroders team was set up by Jeff Blanning, head of emerging markets, and he and the fund manager Clive Dennis used to work together in commodities. They have years of experience in analysing political and economic factors that affect currency.
At the moment, there is very little differential in terms of interest rates among the developed nations and the drivers of currency movements are varying all the time. The Schroders’ team is constantly on the lookout for signals that might change the value of a currency. When volatility is pretty low – as it is at present – they tend to invest neutrally and the portfolio will be fairly close to the benchmark. However, when volatility increases and opportunities become more prevalent, they can move decisively into the areas they believe have the most promise.
The UK’s economic woes and the massive borrowing plans of our Government have made sterling appear vulnerable. The only saving grace is that we are not alone as most of the world’s major currencies look ugly right now. However, given the almighty mess the UK finds itself in, it is not hard to see sterling suffering further falls over the next couple years. This new Schroders’ fund should appeal to those looking to enhance the purchasing power of their capital on a global scale.