Recent years have not been easy for equity investors based in the UK. The Brexit referendum of 2016 and subsequent political dramas have resulted in little certainty on the UK's future trade links and economic health, and possible knock-on effects on individual stocks and sectors. This has made it difficult for investors with exposure to the FTSE All-Share and more global FTSE 100 indices, both of which have trailed behind other major global equity indices over the three years to the end of September.
The underperformance relative to other indices is not only because of these markets' performance – UK equity investors have also been vulnerable to violent swings in the value of sterling versus the US dollar and other currencies.
If a fund has exposure to overseas assets, a weaker sterling can often amplify positive returns. But a move in the other direction can hurt performance for these assets. A glance at how markets fared in sterling terms in 2016, when the pound fell following the referendum result, illustrates this. The S&P 500 made a 30.7 per cent sterling gain in 2016, its biggest calendar year rise between 2009 and 2018. But the FTSE 100, which has significant exposure to overseas earnings, made a 19.1 per cent sterling gain in 2016 and the more domestic-facing FTSE 250 index only rose 6.7 per cent.