Informed Choice

A month ago I wrote about how we had adopted a more global investment approach within our Investment Committee, making some important decisions last summer which moved us away from our traditionally very UK-centric approach to investment advice.

I also explained that tactically we have been positive on the US Dollar too and have placed a large percentage of risk assets into US equities and other US Dollar denominated equities, such as Asia and Emerging Markets.

We decided at our last Investment Committee meeting to review this tactical position should £/$ fall below £/$1.55. With the the pound down another cent against the dollar at $1.4914 and it posting its biggest one day fall in over a year yesterday, now is an opportune time for an update and to consider this tactical position.

The driving force behind the weakness of the pound is uncertainty about the UK Government’s willingness or ability to deal with the national debt.

At the weekend we saw a poll by YouGov for the Sunday Times saying that the Conservative lead in the opinion polls has fallen to 2 points, from 20 points eighteen months ago. This raises the prospect of a hung parliament, which is perceived by the FX markets as negative for the pound and by bond markets for the UK credit rating.

Our clients have benefited from this tactical exposure to the US Dollar since last summer and have decided to continue with the tactical overweight of these dollar denominated assets. Fundamentally we see value in these asset classes for the medium term.

FX markets though can be technically driven and we see £/$ now trading between $1.43 and $1.55 and will not make an adjustment ahead of our next Investment Committee meeting.

Our next Investment Committee meeting will take place at the end of this month, as we make tactical decisions for the second quarter of 2010 and the year ahead.