Zeitgeist: “I want US micro exposure but not US macro.”

A question I was asked this week was how to continue being exposed to US stocks and earnings but limit exposure to the US dollar. One way is to find a hedge.

This content is marketing material. This article is not investment advice, capital is at risk.

Why Hedge USD Exposure?

• Currency risk: If the USD weakens against the GBP, your US investments lose value when converted back to pounds—even if the underlying US stocks perform well.

• Recent trends have seen a weaker USD as investors fled US assets, and this trend could continue to underpin relative weakness in the reserve currency.

• Diversification strategies often focus on geographic repositioning but often investors want to maintain exposure to US growth narratives, particularly big tech and the Magnificent 7.

• The dollar has fallen sharply on trade war worries and a structural shift in positioning around US assets. The US Treasury Secretary, Scott Bessent, has expressly declared his aim to lower the 10yr Treasury yield, which would tend to be dollar-negative, but yields have kept rising.

• The first step in that direction would be SLR changes to allow banks to hold more Treasuries without penalties.

• A run of weaker US data could push long-end yields lower and weigh on the dollar.

• And the end of the "US exceptionalism" trade is something to consider.

• Follow my colleague John Hardy for more on currency impacts.

Portfolio Construction Options

Use GBP-Hedged US Equity ETFs

These track US stocks but hedge the USD exposure. Some options include:

• iShares S&P 500 GBP Hedged UCITS ETF (IGUS)

• Xtrackers S&P 500 Swap UCITS ETF 1C – GBP Hedged (XDPG)

• iShares MSCI USA SRI UCITS ETF (SUAP)

These allow you to benefit from US equity performance while neutralising FX fluctuations.

(The inverse of this is the UK-stock-exposure hedged into USD via the iShares Core FTSE 100 USD Hedged UCITS ETF.)

An unhedged US index ETF example is the Vanguard S&P 500 Dist UCITS ETF (VUSA).

Use Currency Forwards or Futures (for sophisticated investors)

• You can keep direct USD equity exposure (e.g., via US-listed ETFs or shares) and separately enter a GBP/USD forward or futures contract to hedge the currency risk.

• This is more flexible and potentially more cost-effective for large portfolios, but requires active management.

Multi-Asset or Global Funds with Built-In Hedging

• Consider active funds or discretionary managers that tactically manage currency exposure for you.

• Example: Fundsmith Equity Fund (although not always hedged), or Rathbone Global Opportunities Fund.

Important Considerations

• Hedging costs: These vary depending on interest rate differentials (carry) and market volatility.

• Partial hedge: Some investors choose to hedge only 50-70% of the USD exposure to retain some benefit from currency diversification.

• Tax and wrapper implications: Hedged ETFs can be held in ISAs* or SIPPs, but ensure the product is UCITS-compliant

More Considerations

• Fees: Always check the fees of the ETFs you choose and any hedging costs.

• Risk: Hedging strategies can have their own risks and costs, so it's important to carefully consider your investment goals and risk tolerance.

• Professional advice: Consider seeking advice from a qualified financial advisor to ensure you understand the risks and benefits of different hedging strategies

*Tax treatment depends on individual circumstances and may be subject to change.