With our prediction of a considerable victory for the Tories in the UK Election, a few questions from clients have arisen regarding gaining exposure to any rally in the Pound.
As most would be aware, our view for 2017 is that the GBP will be the strongest of the G7 currencies and for most of the year we have been correct. The recent stutters in the Pound have been due to concerns Teresa May’s snap general election will not deliver her the colossal victory originally expected.
We believe any coverage of this as anything short of a dominant Conservative Party win is incorrect.
The key signal for us is that UK Labour and the Tories are campaigning in the battleground seats that are Labour seats. Labour aren’t battling in Conservative seats, but fighting to protect their own. We know the brains behind the Conservative campaign and they, unlike the media, never look at the National polling. National poling would tell you it’s a close race.
National Polling is irrelevant and misleading.
Firstly, and in my view the easiest method is to buy the Betashares Exchange Traded Fund (ETF) with the ticker code POU.AXW. It’s available on the ASX, trades in the normal hours of the ASX, contains the required liquidity to enter and exit smoothly and is easy to understand. Best of all, if you have the ability to trade stocks on the ASX right now, then you can trade this today.
Information is contained here and over the years I’ve found ETFs are becoming more and more a part of the Australian portfolio.
Put simply, you buy this as a replacement to going down to the Forex cashier at the airport and exchanging your Aussie Dollars for GBP. When you want your AUD back, just sell the ETF. The amount GBP has risen or fallen versus AUD between your purchase and sale dates will be your profit or loss.
I can’t put it any simpler because it really is that simple.
I will NEVER pass up the opportunity to use this photo.
Another method of gaining access to Sterling is to buy a company listed in the UK. Many brokers would steer clear of this one, but we run a Global Fund and have been investing there for some time, so we’re across the UK market as much as our own. Every account we set up at VFS, obviously including for our Global Macro Fund, has the ability to trade with ease into the most developed markets. Currently we have clients in various UK companies such as Aldermore, a UK bank, and Vodafone, which should need no introduction. Vodafone has rallied since entry and pays a healthy dividend this week which adds up to a yield of almost 7%. Both are listed on the LSE and both allow for a stronger portfolio return when the currency trade is factored in.
Put simply, if you invest in a stock in the UK that appreciates 10% and convert it back with a GBP appreciation of 3%, you’re able to add an extra 3% onto the return. Obviously a depreciation in the currency works against an investor too but often a good trade is found just by investing in good companies overseas and letting the currency do all the legwork.
Finally, there is investing in an Australian-listed company that earns Pounds. Whilst not an immediate beneficiary of upticks in the short-term Forex market, you’ll often see companies that make earnings predominantly overseas being bought purely for this reason. At some stage those foreign earnings need to reported back in AUD and that, if the currency trade is in their favour, will help their bottom line.
Obviously there are more ways to gain exposure to foreign currencies but these are the best available today. For more information please call me and I’ll do my best to assist on how you can gain access to the Pound.
All the best,
James Whelan & the VFS Global Macro Fund
Level 30 Australia Square, 264 George Street, Sydney NSW 2000
+1300 220 360 | gmf@vfsgroup.com.au | www.vfsgroup.com.au
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