In light of elevated economic and market volatility unfolding globally, and the UK government’s recently announced major tax cuts and increases in government borrowing, the rapid plummet in the value of the Pound and UK gilts has been truly eye-watering. Below, is insight from the Dynamic Planner Investment Committee, to add a more practical perspective on currency swings, away from market noise and speculation.

Exposure to foreign exchange movements goes with the territory – if you want to benefit from a diversified portfolio offering access to UK and global equities, bonds, or alternative assets.

Swings in currencies can however significantly impact portfolio returns, positively as well as negatively, when translated back into British Pound terms.

They are very difficult to predict, particularly over shorter time periods, as we have recently witnessed when market confidence can move rapidly based on changing economic fundamentals. Over the longer term though, the effects of currency movements often tend to even themselves out.

Several asset managers do consider currency movements to be an important part of their tactical asset allocation and currency hedging decisions. Others however avoid trying to second guess the vagaries of foreign exchange markets and instead take a more strategic perspective, relying on a broad mix of currency exposures in their portfolios to even out fluctuations longer-term.

The full implications of shifts in currencies can be hard to fully understand…

At Dynamic Planner, each benchmark asset allocation is carefully constructed to balance return expectations in line with investor risk tolerance.

Since 2017, the strategic direction of travel, of the asset allocation decisions taken by the Investment Committee, has been to gradually increase exposure to non-£ assets, both equities and bonds, while prudently adding to money market deposits for added diversification.

The 2022/23 asset allocation review has continued with this strategy.

Join Chief Investment Strategist, Abhimanyu Chatterjee on 20 October for his quarterly update, where he will discuss these allocation changes