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Investing and the New Zealand dollar impact

The big issue for your investment portfolio in 2013/2014 is the New Zealand currency. 
To have a well diversified portfolio, you should hold Australian and International Shares.  You may also have International and Australian Property and Fixed Interest investments in your portfolio.

As the New Zealand dollar increases in value against other currencies, your portfolio will decrease in value.  The NZ/AUD exchange rate was 0.79 earlier in 2013.  As at the time of writing of this email it has increased to 0.94.  Some commentators are suggesting that it might increase to 1.00.  Others are saying that it will stay around 0.92.  Others are suggesting that it might fall.

We have provided you with some links to interesting articles on the New Zealand Currency (the Brian Gaynor article is the best), that show that it is virtually impossible to predict where the currency will go, and virtually impossible to ‘manage it.

The options available to you to manage your currency exposure are limited.

1. Patience - understand that the currency impacts will either be a one off (ie the exchange rate will stay at this level for ever and your negative returns will only be for now.), or there will be more ‘one off’ or ‘temporary’ losses if the exchange rate goes to 1.00.  Or, it might be that these exchange rate changes are temporary, and you will get an extra increase in returns on your portfolio as the exchange rate goes the other way.

2. Purchase fixed interest 'cover' - hedging, this will be at a cost to you, and if you get it wrong, then you lose out on the 'insurance premium' that you paid for the 'cover'.

3. Use only hedged investments.  This is a possible option, however, you need to look at the underlying management of any investment fund and ensure that it is the best option across the board, and not just because it is a 'hedged' investment.



 

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