Premier Asset Management says the sector-imposed overseas currency limits on its multi-asset distribution and multi-asset growth funds are not the only reason it favours sterling.
The firm points out that the funds, which are in the IMA cautious managed and balanced managed sectors respectively, must hold at least half in sterling or euros but their exposure to sterling exceeds the minimum, with multi-asset distribution holding 90 per cent in sterling and the growth fund’s sterling exposure at around 75 per cent.
Premier says these positions reflect the conservative risk profile of the distribution fund and the higher-risk profile of the growth fund.
The funds have recently lagged in performance terms because they have been heavily exposed to sterling weakness but Premier believes that increasing overseas exposure would be unsuitable for investors, as the risk profiles of the funds would also increase.
Investment director, pooled funds, David Hambidge believes in an environment where all currencies have problems, it makes sense to hold sterling. Sterling is cheaper than other currencies and he believes this makes it more likely than other currencies to appreciate. He also believes UK investors will not be harmed in absolute terms if sterling depreciates.
Hambidge says: “I think it is fine to have overseas currency for diversification purposes but I do feel a lot of finds have too much overseas currency for the cautious risk profile in particular. The multi-asset distribution fund’s risk controls ensure it holds a lot of sterling and this has held the fund back. Multi-asset growth has more scope to hold overseas currencies because its risk profile is higher.
“We feel all the reasons not to like the pound are already baked in the cake. We expect it to appreciate against the euro, probably the yen and possibly the dollar.”