‘Sterling has been an outright beneficiary of the UK’s co-ordination of fiscal and monetary policy as tools to kickstart the economy,’ said Hamish Baille and Citywire + rated Steve Russell.
‘If this recovery proves unsustainable then sterling is vulnerable and particularly so when one also factors in the looming political uncertainty surrounding the Scottish referendum, a general election and the question of EU membership.’
Through their portfolio, Baille and Russell (pictured) are now 25% exposed to the US dollar, principally through holdings in unhedged US index-linked bonds and US equities.
‘This is as much a reflection of the dollar’s protective credentials as it is of sterling’s frailties,’ they explained.
The pair acknowledged that this dollar positioning had ‘come at a price’ during the pound’s recent appreciation, but contended that it would pay off in any downturn.
Baille and Russell cited the experience of 2010 and 2011 as evidence of the dollar’s value in protecting their fund.
‘In a world of zero interest rate policy – where asset prices are distorted and affordable offsets are hard to come by – currencies, the deepest market in the world, are useful,’ they concluded.