That’s because the US Federal Reserve looks poised to embark on an interest rate tightening cycle as early as June this year - The Federal Open Market Committee of the US central bank meet tomorrow - but the Bank of England is unlikely to follow suit given the weaker inflationary backdrop in the UK. In fact, with UK core inflation set to drop into negative territory in the months ahead according to the central bank’s governor Mark Carney, money market futures point towards the first base rate rise being delayed until next year. In turn, this divergence in interest rate policy is benefiting the greenback and is boosting the sterling value of LMS’s US investments.
For instance, in the financial year to end December 2014, the company reported a £5.9m unrealised currency gain on its US portfolio of quoted, unquoted and fund investments, reflecting a 9 per cent devaluation of sterling against the greenback in the second half of last year. Moreover, since the company’s fiscal year-end, the US dollar has appreciated by a further 5 per cent from £1=US$1.557 to £1=US$1.474. To put this latest currency move into some perspective, around 64 per cent of the LMS investment portfolio is held in US assets, the equivalent of £85m of the £133m of assets held at the end of December 2014. This means that the weakness of sterling since the start of this year has resulted in an additional £4.8m unrealised gain on LMS’s US portfolio, or the equivalent of 3.3p per LMS share to lift its spot net asset value to 96.3p, up from 88p at the end of December 2013.