| A currency fund is a 'pooled' investment, usually a
unit trust, where a number of investors' money is pooled together
to invest in money market instruments in different countries. The
fund is able to use Its buying power to purchase investments at wholesale
rates, thus benefiting from a better rate of interest than is available
for individual investors.
Higher rates of return are often available from other countries
of the world, where interest rates are higher than those in your
home country but how do you know whether you are getting genuinely
good value or a raw deal? Investing through a fund offers you the
currency expertise of a professional manager and the chance to take
advantage of high interest rates; then move when the time is right.
The usual investments bought by the fund manager will be:
Bank certificates of deposit, Commercial Paper, Short term Government
bills and notes and Company Loan Stock.
We will not recommend a fund until we are satisfied as far as reasonably
possible that the managing investment house has stringent standards
in place for assessing the credit rating of the institutions issuing
the underlying investments.
The aim of most funds is to obtain as high a yield as possible
while minimising the risk to investors' capital. The types of instruments
purchased by the fund should meet minimum international credit rating
standards and thus represent a relatively low form of risk.
Most investment houses will charge only an annual management charge
of around 0.50%. Charges are not the only aspect you should consider,
as you do very often get what you pay for in terms of quality of
management and underlying investment security.
Our recommendations will depend on a number of factors, the most
important being:
- Your attitude towards investment risk
- The performance track record of the management house
- The condition of currency markets at the time of investment
Where Asian funds are used, investments will be made into instruments
in countries such as Thailand, Singapore and Malaysia. Whilst the
instruments used will be of largely superior credit rating, you
should be aware that the markets are not as sophisticated as those
of the primary investment markets. Using a professional fund manager
does reduce some of the overall risk.
Currencies can be volatile and large rises and falls in value can
be experienced. The aim of the funds recommended by Tresidder Tuohy
and Partners is to reduce this element of risk as much as possible.
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