High non-sterling exposed funds have been a draw for investors since the sharp drop in the UK currency in April 2018, according to investment bank and research provider Stifel.
The circa 13% weakness in sterling against the US dollar since April has been particularly beneficial for the net asset value (NAV) of funds with high US weightings.
Stifel compiled a list of international trusts that only hold assets that are not exposed to the UK.
US weighting
Most of the trusts listed, such as JP Morgan Global Growth & Income and Martin Currie Global Portfolio, have the majority of their assets in non-sterling exposed funds; with 94% and 86% of their assets, respectively, based elsewhere.
JP Morgan Global Growth & Income has 50% of its asset in North America, 29% across continental Europe, 11% in Asia Pacific and 2% in other regions.
Similarly, Martin Currie Global Portfolio has 40% in North America, 33% across continental Europe, 9% in Asia Pacific and 4% in other places.
Entirely outside of the UK
However, Stifel lists Henderson International Income Trust as the only international trust that is 100% non-sterling exposed.
According to the report, the Henderson International Income Trust has 39% of its assets in continental Europe, 37% in North America and 23% in the Asia-Pacific region.
Among its top 10 holdings are Microsoft, Nestle and Coca-Cola. The trust is also very much focused on the United States, where it holds 32.4% of its assets, followed by 9.4% in Switzerland, 7.3% in France and 6.6% in China.
Additionally, over 25% of its assets are invested in the financial sector, nearly 15% in technology and a similar figure in consumer goods.
Three key drivers
According to Iain Scouller, managing director at Stifel, who also worked on the non-steling exposure report, there are three factors making investor flee the UK.
“Investors are increasingly looking for businesses that have a global reach – many of the fastest growing businesses have been international and particularly US eg Amazon – some trusts such as Scottish Mortgage have a focus on growth companies and this has made invest internationally.
“Investors dislike uncertainty and clearly at present there is plenty in the UK given the impasse in parliament. There are also concerns about the risk of a socialist government, with nationalisation and a higher corporate tax agenda.
“Income – 15 years ago trusts that wanted to pay high dividends had to invest in the UK to generate a high enough income to pay out a large dividend. This has changed with many companies in Asia and emerging markets now paying high dividends.
“We do think that if parliament approves an EU withdrawal package in the next few weeks, we could see a strong rally in sterling and UK domestically focused shares – in such a scenario the funds that have benefited from weak sterling and high overseas exposure could underperform the more UK orientated funds.”
