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I live in the UK and have a portfolio of shares denominated in GBP (and some in USD).

In the next 1-3 years, I may move to Europe, and with Brexit looming, I would like to make sure that my investments, when realised and converted into Euros, keep (or increase:) their value.

I think Brexit may (will?) reduce the value of GBP vs EUR, so I'm wondering what options I have. Bear in mind, I might decide not to move to Europe after all, so need to consider that too.

As far as I can think, options are: - buy a forward or similar, to lock the current GBP-EUR value. - Invest everything in EUR or USD denominated shares, which should appreciate if GBP goes down. - sell all shares I have, and convert the proceeds to EUR

..anything else? does any of the above have particularly good pros (of bad cons) that I should consider?

  • Any hedge you make is an implicit bet on EUR vs GBP and will lose you money if your assumption is wrong, and if you're not even sure that you will move, then it's more of an outright bet rather than a hedge. I'm curious as to your confidence that Brexit is likely to reduce the GBPEUR rate... there are arguments the opposite will happen, given UK's new "sovreignty" or whatever, and the heightened risk of EU breakup caused by a member actually leaving. Also note that weakening currency is often good for share prices denominated in that currency. – David Jun 15 '18 at 16:04
  • Hi David, my reasoning is that Brexit will be bad for the UK, and one of the things the government may (will?) do to prop-up the economy is to devalue the Pound. However, by all means I'm not 'confident' this will happen. After all I thought Remain was going to win, so I'm clearly not that good at making predictions :) – Patrick Jun 15 '18 at 18:21
  • Hedges cost money or entail risk, depending on their structure. You need to weigh the cost of the hedge versus the amount of protection it provides in both directions (your prediction is right or it is wrong). – Bob Baerker Jun 15 '18 at 22:12
  • What makes you think Brexit hasn't been priced in yet? GBP has dropped against EUR already, ( ~1.40 in 2015,~1.15 in 2018) – MSalters Jun 18 '18 at 6:54
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There are many different things you can do. But please do not forget that hedging GBPEUR does not mean reducing risk. It means locking an exchange rate and speculating that it will move in your direction in the future. You are saying that you know better than the market that is pricing GBPEUR to whatever the exchange is today.

Also, keep in mind that the exchange rates are affected by the interest rates. EUR currently has lower rates than GBP and it may continue to do so.

To answer your question:

  • You can buy EURGBP options, that is the right to trade an amount of GBP for EUR for a specific interest rate in the future. You can limit your risk of loss, like that.
  • You can buy EURGBP futures. That is more risky.
  • You can exchange GBP to EUR and buy assets in EUR. There are several stock brokers etc that allow you to do that (some based in the UK, others based in USA or EU but having a presense in the UK as well).
  • You can buy funds in GBP that invest in assets denominated in EUR, eg european equity indices or european bonds, that do not hedge the currency exposure. That way you don't have to convert your funds to EUR now, but still benefit from EUR gaining against GBP.
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You could buy shares in EU (non-UK) companies. Apart from share prices going up and down all the time, the share price of EU companies would tend to stay stable in Euros, while the share price of UK companies would ten to stay stable in British Pounds.

Or you could invest your money half in British Pounds, half in Euro. That way, whatever happens, you either gain half as much, or you lose half as much as if you had invested in one currency only.

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