Warning 'misconceptions' of currency hedging will be the next industry scandal as FCA 'turns blind-eye'

Sterling rally a major risk

Industry commentators have warned the majority of independent financial advisers (IFAs) and wealth managers have failed to hedge their foreign currency holdings into sterling, meaning a rally in the pound could wipe out returns.

In a further warning, they said unknowing investors in safe-haven assets such as global bond funds will be hardest hit by a sterling rally, as bonds are most affected by currency movements. In 2016, investors in foreign assets benefitted from a sterling windfall following the collapse in the currency after the UK voted to leave the European Union (EU). The pound plummeted 16.5% against the dollar to as low as $1.149 during that year, fuelling the rise of foreign equity holdings and large-cap UK stocks. However, according to Christopher Peel, CIO of Tavistock Wealth, this trend is set ...