Holly's Blog - The Popeye Dollar and a midlife crisis
15 July, 2022
This week, I’m sharing the best-selling retail funds, thinking about why a powerful US dollar matters and displaying worrying signs of a midlife crisis.
Yesterday we published the monthly bestselling funds, investment trusts, ETFs and shares across the UK’s 4 largest investment platforms – it gives us a pretty good flavour of what DIY investors are up to. What is the Wisdom of the Crowd? If we combine all these bestsellers into a single❤️ list, 6 funds feature on at least 2 platforms’ bestsellers lists.
The story is one of global ‘mixed bags’ of shares, a dollop of energy, lots of low-cost passives and the (nicely meant) cockroach-like Mr Smith who remains stubbornly popular despite running a fund (Fundsmith Equity) with about 70% exposure to the US and a 20% exposure to the spanked sector that is software and tech.
If you’re interested you can read more in our monthly fund focus newsletter which is published here or sign up to get this Monthly Funds Bulletin on an ongoing basis. But enough of this fund excitement - read on mes amis because there’s something else afoot…..
The Big Bad Dollar
The US dollar is eating its spinach and flexing its muscle 💪🏻. This week, €1 Euro fell to less than $1 dollar for the first time in 20 years. And £1 gets you a measly $1.18.
The dollar is so strong because it’s basically in demand. Inflation in the US is running at over 9% – and the Fed have reacted swiftly and aggressively, trying to slow things down with higher interest rates. Savers of course like higher interest rates – and so across the world, large institutional savers want to put their money in the US. To do this, they need dollars. And when demand for something jumps, so does its price. And voila the dollar gets stronger. Frankly the US also feels like a much safer bet than Europe where it’s also going pear-shaped but we’re closer to Russia, the gas crisis is biting and interest rates are typically lower.
Add all this up and it makes the US look like a relatively decent bet despite its domestic scenes of economic gloom. In 2022, global markets are a bit like a modern political leadership contest – we’re voting for the least bad rather than the best. 😄
(Ps are you enjoying today’s liberal sprinkling of emojis? I am wondering if excessive emoji-use is today’s digital indicator of a mid-life crisis, offering a cheaper alternative to the yellow Porsche buying of the 1980s? 🤣🤣👵Some of the newer fintechs in 2021 run by enthusiastic young men in chinos seemed to evidence a correlation between number of emojis per average email and valuation multiple so maybe I should stick with it!? 🤑).
Back to the main story….What does a Popeye Dollar mean for investors?
There are three things to look out for.
1) If you invest in US companies which earn money internationally, their profits look limper when the money they earn in pounds, for example, is translated back into dollars. Every £1 they make here, only gets them $1.18 to add to their profit back home. As one example, Microsoft has already lowered its revenue expectations, in part blaming the strong dollar. So this could hurt US shares you own which have a high degree of international earnings.
2) Do you know if your investments or portfolios are hedged? I’m not talking about Ilex Acquifolium here (OMG SUCH a feeble middle-aged joke there), but the clever jiggery-pokery that goes on behind the scenes to basically remove any impact of currency from your investments. For example, some robo advisers in the UK use hedging across the board and some take a more discretionary approach, making a call on this as they go. This largely opaque decision will have had one of the most meaningful impacts on your performance this year. We’re doing some more digging on this and will report back next week.
3) And finally, if any of you are braving airline chaos and flying off for some sun, sea and sangria, just remember that a weak pound makes for expensive pizzas, baguettes and paellas. On no account is any reader of mine ever to change money at an airport! And don’t use your normal bank card when aboard for transactions as they will sting you. Think about a travel debit card which offers fee-free spending and cash withdrawals – check out app-only Chase or Starling.
If you want folding cash readies, I personally like the Post Office, which has decent rates, a good service and next day delivery to your home. Lovely.
And as a final rule of thumb if asked whether to pay in pounds or the local currency, pick the local currency. If you pick pounds, you get Costas Tavern’s exchange rate which probably isn’t as favourable as the interbank rate!
Have a lovely weekend everyone and enjoy the sun. Normal emoji-free service will resume next week.
Holly
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