Tuesday saw bond market yields reach 16-year highs as traders react to signals from the US Federal Reserve that it will keep rates “higher for longer” to damp down demand and finish its job of vanquishing inflation.
The US dollar has also been benefitting from similar forces in recent weeks, gaining over 4% on the pound, which analysts at Stifel suggested has "made an important contribution to returns for funds that invest in US dollar assets".
Such strength of the greenback has boosted the net asset value of funds with high exposure to US dollar assets.
As an example, Scottish Mortgage Investment Trust PLC (LSE:SMT) is estimated to have just over half of its portfolio in US dollar-denominated assets, with the analysts noting the currency tailwind on the US dollar assets has been 7.5%, boosting its NAV since mid-July, and estimated by Stifel to have added over +4% to the trust's NAV in that period.
And with currency volatility seen likely to remain an important factor in investors' returns over the next few months, the analysts highlighted the trusts that have most US dollar exposure, to "provide a 'ready-reckoner' on currency sensitivity".
US exposure by fund
- Edinburgh Worldwide 72%
- JPMorgan Global Growth & Income 67%
- RIT Capital Partners (LSE:RCP) (Geographic Exposure) 59%
- Monks Investment Trust PLC (LSE:MNKS) 58%
- Mid Wynd International Investment Trust plc (LSE:MWY) 57%
- Caledonia Investments (LSE:CLDN) (Currency exposure) 56%
- Alliance Trust PLC (LSE:ATST) 55%
- Scottish Mortgage 54%
- Martin Currie Global Portfolio Trust plc (LSE:MNP) 52%
- STS Global Income & Growth 52%
Scottish Mortgage, one of the best-known names among trusts, is far from the most exposed to the dollar, as can be seen in the table above.
And despite its forex boost, the FTSE 100-listed company's NAV has declined 3.3% over the past three months end-September, which the analysts said reflected the weakness of growth stocks.
Another example was JPMorgan Global Growth & Income, one of the most exposed to the dollar, with two-thirds of assets in North America and a forex boost estimated to be around 5.0% over the period, but similar weakness in the equity portfolio reducing the NAV return to 1.0% over the past three months.
The analysts noted that most trusts do not publish their sterling or other currency exposure on a regular basis, if at all.
"However, as a proxy, we think that using the geographic data that are published monthly by the AIC should provide a good indication of sterling and US dollar exposure."
Therefore, the above table is Stifel's rank of funds by their exposure to North American assets, provided as a "proxy" for US dollar exposure.