Holly Black: Welcome to the Morningstar series, "Ask the Expert." I'm Holly Black. With me is Mike Coop. He's Head of Multi Asset at Morningstar Investment Management. Hello.
Mike Coop: Hi.
Black: So, you're here today to talk to me about currencies. Because it's been a big week for a lot of the major currencies. What's been going on?
Coop: Yeah, there's been some interesting things happened here in the UK that have driven the pound down. But there's also been things happening globally. So, the best picture is, globally, we've had weaker growth. We've had concerns to do with the US trade policy against the world and against China in particular. And as a consequence, we've also seen a drop-off in trade, and we've seen a drop-off in manufacturing activity everywhere. So, what's happened is, activity generally has slowed down, and markets are pricing in rate cuts.
Black: So, all of that means a weaker pound, which is sad if you're going on a holiday, but it also has implications for your investments, doesn't it?
Coop: Yeah. So, it's been great if you've had foreign currency assets, because you've made money. You probably picked up 4% or 5% from your currency gains in the last few months. The question we got as well, where does that leave the currencies now. But if you look at the pound against the dollar, it's at close to the lowest it's ever been. So, looking forward, for us, what that means is the chance of you making money out of the dollar from a long-term perspective are now pretty low, because the pound is very cheap. And the chance of you losing money is higher than usual. So, what we've been doing is, we've been trimming our foreign currency exposure in the managed portfolios that we run here for our clients. So, I think this is the key thing for investors to think about, at what point should you be looking hard at the currency exposure you've got and if you have a lot of it, you should be thinking about whether that's still appropriate.
Black: And people might not realize they've got currency exposure, because they think I'm just invested in a fund that's a global fund or whatever, but that still means you are exposed to currency risk.
Coop: That's right. And the US dollar is still probably the biggest part of your foreign currency exposure as an investor because it's the biggest part of global equity markets, and that's generally where you're going to get foreign currency exposure. So, I think this is an important time for people to think about it. We already saw what happened a couple of years ago when the pound straight after the referendum vote dropped to about the levels it is at now and then went up from about £1.20 to $1, to over £1.42, £1.43 and has come back down again. So, people should consider that the pound can go up, it doesn't just go down.
Black: And when currencies are volatile is often a time that people start talking about investing in gold. Do you think that's a good idea?
Coop: I think gold is one of those assets which relies upon certain things happening before it's a better investment than other investments. It relies upon inflation being a lot higher than markets are pricing in. And so, that would require quite a change to the world order for that to happen. It's also an investment that doesn't – it's very hard to value. So, there's a lot of uncertainty. It doesn't generate any income. So, it's basically an asset where you're relying upon others buying it off you and guessing how much they'll pay to buy it off you because there's no intrinsic value with gold. So, it's kind of a very speculative asset. Whereas if I've got a property or I've got government bonds, or I've got shares, there's a cash flow there that I can anchor and decide what is a reasonable basis for a fair value and therefore how much I should pay. But with this, it's very much the beauty is in the eye of the beholder. And so, it can move around a lot. So, it's not generally a great long-term investment unless you're in a country where it's very prone to high inflation and you have very few the things you can invest in.
Black: Well, thank you so much for your time.
Coop: My pleasure, Holly.
Black: And thanks for joining us.
