According to the Natixis UK Portfolio Barometer for the second quarter of 2016, over the period from 24 to 27 June currency risk contributed a 4% positive performance, which Natixis points out, effectively neutralised the losses from equites over the same period.
But, while sterling’s plunge against the dollar was well documented at the time, what is perhaps less well appreciated is just how exposed model portfolios are to currency risk in general.
The latest data set, based on an analysis of 112 model portfolios from 29 firms across the UK, shows that, on average, 19% of the investments within conservative portfolios are unhedged, while that exposure rises to 31% within moderate portfolios and 45% within aggressive portfolios. And, as is evident from the table below, the majority of that exposure is to the US dollar.
| Average weight % | Dollar | Euro | Yen | Total |
| Conservative | 13 | 4 | 2 | 19 |
| Moderate | 19 | 7 | 5 | 31 |
| Aggresive | 25 | 8 | 12 | 45 |
Average Currency Exposures In Model Portfolios By Weight And Risk Category
Source: Natixis UK Portfolio Barometer Q2 2016
Natixis goes on to point out exactly what sort of effect such a level of exposure can have on performance. Illustrated by the graph below, which uses the moderate portfolio weights in the table above, it is clear that in periods of significant movement, currencies can have a significant affect.
And, with a number of known risk events (and possibly a few unknown ones) still to come in the next 18 months – Fed chair, Janet Yellen’s Jackson Hole speech the most imminent – a clear view of exactly what currency exposure one has is going to be crucial.
