ARC: Not all currencies are created equal

New data from Asset Risk Consultants shows that choice of reference currency, not investment risk, has had a greater impact on a portfolio’s global purchasing power.

ARC: Not all currencies are created equal

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Macroeconomic events, like Brexit, the US election and the soon-to-be-concluded French election, inflation concerns, interest rate expectations and economic growth projections have all made foreign exchange movements even more difficult to decipher over the past year.

Using its own indices as a proxy for the average private client investment experience, ARC’s report looked at returns in five base currencies – the dollar, sterling, the euro, Canadian dollar and the Swiss Franc – across four different risk profiles.

As far as investors are concerned, currencies perform two separate functions – they act as a unit of account and simultaneously provide a store of value, ARC explained in its report.

It is in this second area where it “certainly feels as if not all currencies are created equal,” according to the investment consultant’s findings.

The dollar, for one, has appreciated significantly against sterling, the euro, the Canadian dollar and the Swiss Franc over the past three years.

Nowhere were those gains most felt then after the EU referendum when the dollar shot up close to 13% against the pound, going from £0.67 to £0.75 over that weekend last summer.

While in absolute terms, the dollar strength does not seem to have helped dollar investors generate higher returns over a three-year period (see below), the results are strikingly different when rebasing these numbers in dollars.

 

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