Currency Risk of Investment Trusts

[Eoin_H]

Hi All,

Some background: I'm a relatively new investor, looking for passive long term capital growth. Over the past two years I've managed into save about 20k into an all-world ETF on degiro. However, recently I've been looking into the tax implications and have been thinking of selling my entire position and buying shares of several investment trusts instead.

My question is; most of these trusts are denominated in pounds. Does this introduce currency risk, or is this mitigated by the fact that the trusts have assets in a mix of different currencies?

Thanks

 

[Gordon Gekko]

It’s mitigated by the fact that the Trust owns foreign assets and has non-Sterling income streams.

Not is it’s something that’s UK focussed, obviously.

But take something like a Japanese focussed Investment Trust. If the share price is £1 and Sterling collapses in value versus the Yen, you should see the share price increase accordingly.

 

[Eoin_H]

It’s mitigated by the fact that the Trust owns foreign assets and has non-Sterling income streams.

Not is it’s something that’s UK focussed, obviously.

But take something like a Japanese focussed Investment Trust. If the share price is £1 and Sterling collapses in value versus the Yen, you should see the share price increase accordingly.

Thanks, I suspected this was the case, but I wanted to check with someone to confirm my intuition.

 

[EmmDee]

I'd check the prospectus. Normally a fund that has currency exposure between it's base currency and underlying assets will hedge that exposure. So in the above example, the collapse in Sterling would not cause a share price increse (at least not to the same extent) as there would be a similar loss on the currency hedge

 

[Gordon Gekko]

Hi EmmDee,

I don’t think that a Japanese Investment Trust, like the other example I gave, would be hedged.

In fact, I don’t believe Investment Trusts do that generally.