Is your portfolio benefiting from the decline in sterling?
The uncertainty which continues to surround Brexit – hard or soft, sooner or later – is still having a pronounced impact on sterling.
Investors holding globally-diversified portfolios have enjoyed a boost to their returns. This is because many FTSE 100 companies generate a large proportion of their income from overseas markets. Companies such as HSBC and GlaxoSmithKline earn much of their revenue in dollars and are seeing a substantial rise to their share prices.
Around three-quarters of the earnings of FTSE firms come from outside the UK. If the pound is weak, these profits are worth more when converted back into pounds from dollars or euros.
Both UK oil companies Royal Dutch Shell and BP made quarterly payouts in December that were 20 per cent higher than a year ago. Together the firms gave a Christmas bonus worth almost £500m to UK shareholders because of the practice of setting dividends in dollars and paying them in sterling.
In fact, ordinary dividends paid by FTSE100 and FTSE250 firms increased by around 16 per cent year-on-year in the last quarter of 2016 with technology, telecoms, oil and gas firms leading the field.
On the flip side, if your investments have been in mainly domestic portfolios, you will have lost out significantly over the last few years. You are far from alone. Data from the International Monetary Fund confirms that UK investors typically allocate only 50 per cent of their total equity allocation outside of the UK – despite the country making up only 7 per cent of world market capitalisation.
UK stocks have not actually done too poorly recently, it is more that the rest of the world has performed better. In 2016, performance index MSCI UK was up by 17 per cent. The global index MSCI World (excluding UK) fared better, rising 26 per cent in the same period.
At Cavendish we have been running global portfolios, where UK equities account for only a small percentage of a client’s holdings, since 2008. Portfolios are created with full knowledge that major events will occur and that only robust, well-diversified investment plans will stay the course. Clients are not dependent on UK equities and have enjoyed higher returns on their investments since the Brexit vote, despite the volatility in the value of the pound.
Owning a highly-diversified portfolio is the key tool that we have to make sure that we are prepared for whatever the markets throw at us over time.
Is your portfolio well structured? Are you confident in your investment plan? For detailed advice, please speak to one of our advisers on 020 7636 7006.