Sterling weakness pushes fund buyers into unhedged share classes

The continued weakness of sterling against the US dollar has prompted fund buyers to move out of sterling-hedged share classes and into unhedged or dollar-denominated positions.

After breaching highs of $2 to the pound in 2007 and 2008, sterling fell below $1.37 in January 2009 to its lowest level for 25 years. It recovered somewhat in subsequent years, climbing back above $1.60. But so far this year it has weakened again, falling 4.5% to $1.55 year-to-date. At the end of May, PIMCO warned the pound could fall by as much as 15% against the US dollar from here to decade lows if incoming BoE governor Mark Carney moves to prop up the UK economy with further QE. In contrast, last month chairman Ben Bernanke hinted the Federal Reserve may soon start reducing it...