Hedge a Personal Pension Plan against currency devaluation?

[-Pete-]

My pension is invested in cash, which for my pension provider means about 80% non-UK (loans to banks). If GBP devalues, should I expect the value of my pension fund to increase? If not, why? And could I invest in a fund which will benefit from a weakening of the pound?

[davepoth]

How old are you?

[Ozzie Osmond]

-Pete- said:

My pension is invested in cash,

Why??

Davepoth has already raised one of the basic points - age. But even if you're 64 and about to retire tomorrow, why are you in cash? Would you be planning to buy an annuity?

The headline answer heading your way is, "Go and see a competent financial adviser, and do it urgently".

[Jockman]

I would go and see a competent adviser and I would do it toute de suite.

[-Pete-]

I'm within a few years of retirement, but not looking for an IFA right now, just a bit of guidance.

I've been in cash since mid last week, temporarily, as I've been consolidating three pensions into two and it simplified things. Now I'm trying to decide whether to wait for the end of June, or distribute the money into other funds now, to protect me against potential devaluation of the pound.

All my pension providers funds are priced in pounds, but if they're investing in overseas equities or lending to foreign banks, there must be a currency exchange involved. So the question is, assuming the pound loses value vs other currencies (which may or may not happen), would the GBP value of my funds increase proportionally - all other things remaining equal?

Thanks.

[GT03ROB]

-Pete- said:

All my pension providers funds are priced in pounds, but if they're investing in overseas equities or lending to foreign banks, there must be a currency exchange involved. So the question is, assuming the pound loses value vs other currencies (which may or may not happen), would the GBP value of my funds increase proportionally - all other things remaining equal?

Simplistically yes, but it is an over simplification

[-Pete-]

GT03ROB said:

-Pete- said:

All my pension providers funds are priced in pounds, but if they're investing in overseas equities or lending to foreign banks, there must be a currency exchange involved. So the question is, assuming the pound loses value vs other currencies (which may or may not happen), would the GBP value of my funds increase proportionally - all other things remaining equal?

Simplistically yes, but it is an over simplification

Thanks for the reply. I only recently noticed that some pension funds available to me are hedged against the pound or euro, until now I hadn't thought about currency when choosing funds.

Can you give me some ideas of why it's an over simplification?

[Ozzie Osmond]

I'd re-invest 50% now while markets have got the jitters and do the other 50% later.

When you buy, for instance, a global equity or global bond fund the currency side of things is automatically smoothed by the spread of investments within the fund. Equally the UK FTSE 100 companies are so international that you get a similar effect.

[GT03ROB]

-Pete- said:

hanks for the reply. I only recently noticed that some pension funds available to me are hedged against the pound or euro, until now I hadn't thought about currency when choosing funds.

Can you give me some ideas of why it's an over simplification?

Because in the case of a meltdown in the value of the pound there are likely to be a number of other things going on which could influence stock prices over & above currency gains/losses. Buying foreign assets before a fall in sterling & selling after a fall in sterling will yield a profit assuming the value of the asset remains unchanged in the foreign currency.

[DonkeyApple]

-Pete- said:

I'm within a few years of retirement, but not looking for an IFA right now, just a bit of guidance.

I've been in cash since mid last week, temporarily, as I've been consolidating three pensions into two and it simplified things. Now I'm trying to decide whether to wait for the end of June, or distribute the money into other funds now, to protect me against potential devaluation of the pound.

All my pension providers funds are priced in pounds, but if they're investing in overseas equities or lending to foreign banks, there must be a currency exchange involved. So the question is, assuming the pound loses value vs other currencies (which may or may not happen), would the GBP value of my funds increase proportionally - all other things remaining equal?

Thanks.

But you'd need to know the net exposure of each fund and whether it was holding any hedges. Then calculate the exposure across all funds, taking into account the internal currency exposures of the individual equites as a Seiss listed firm could be net exposed to GBP etc.

So, in short, I don't think it would be possible to apply any remotely meaningful, let alone cost effective form of placing a viable hedge.

[Adam B]

Ozzie Osmond said:

Equally the UK FTSE 100 companies are so international that you get a similar effect.

agreed - c.80% of FTSE 100 companies business is outside of UK, so betting on FTSE is not betting on UK economy, but most of those companies will hedge revenue back to GBP, so it could still be a long GBP position