subject: Currency Outlook For Sterling And Dollar Analysed [print this page] Here Simon Callow, Fund Manager, Midas Balanced Growth Fund, MAM Funds, looks at what is in store for the two currencies
Sterling:
"Sterling is set to be the biggest issue to face UK domiciled fund managers over the next 18 months. The CF Midas Balanced Growth fund currently has 60% sterling exposure, although we may consider going below this level. The reason for this is twofold; the current economic outlook, coupled with preserving purchasing power for clients. We believe that those countries that are printing currency hand over fist are debasing their currencies which will result in them losing their purchasing power.
"Signs point to an investment downgrade in December, which may result in many financial institutions automatically reducing their exposure if they are only entitled to hold AAA currency or debt. Additionally, the coalition government has not made significant inroads into the national debt. We do need to see the debt coming down from 90% of net debt to GDP, and at the moment there's been no significant inroads which is quite concerning."
US Dollar:
"We continue to be less bearish on the US dollar, regardless of the US government deficit. This is due to timing - in an election year, economic data is positive, employment is improving and the US housing market has stabilised.
"However, we are set to review the situation with the US Dollar in January 2013. The country's twin deficits coupled with how slowly the US government is implementing policy to deal with this issue is a long-term concern. Nevertheless, for now the US dollar remains the world reserve currency and still benefits from a safe haven status. This means that when risk aversion increases the dollar usually strengthens - dampening volatility for the Balanced Growth fund.
"We have actively improved the liquidity of the Midas Balanced Growth fund since 2008 in response to our belief that investment cycles continue to get shorter and shorter. We can now move the assets round at will to respond to the volatility within the markets."
