BREXIT and several other high profile events over recent years have highlighted the importance of understanding the affect of currency exposure in investment returns. The way currencies affect different stockmarkets across the globe can differ and can be a big driver of portfolio returns.
Many factors move stockmarkets but currency is sometimes overlooked. The majority of FTSE 100 companies generate their revenues outside the UK (in foreign currency) with an estimated 70% of revenues being non-UK derived. A significant event in the summer of 2016 highlighted the effects (shown in the chart below)…
Over this same period, the total return in the FTSE100 was 42.05%.
In contrast, across the pond the S&P 500 & USD have different characteristics. Again, there are many factors that can influence stockmarkets but the S&P 500 usually benefits from a strong dollar. Around 70% of the revenues generated from companies in the S&P 500 are delivered from within the United States (in USD).
Over the past few years, the big swings in currency we have seen can have a large effect on total portfolio returns.
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