UK fund managers pay more to hedge in 2024, MillTechFX survey says

By Nell Mackenzie

LONDON (Reuters) – More UK fund managers say they’ve paid higher costs in 2024 to protect their investment portfolios against fluctuations in currency markets, according to survey results by software provider, MillTechFX.

This year, 88% of UK fund managers said they decided to hedge their investments against currency risk, up from 75% last year, because of increased volatility, according to a survey of 250 UK asset managers.

Most said they had put on forex hedges because of options market pricing.

Forex options are often used to hedge against, or speculate on, future scenarios in currency markets. The probability of higher or lower volatility is factored into the cost of an option – like an insurance premium.

The costs of hedging have risen, 84% of the fund managers said, up from 75% last year, the survey showed.

The pound hit a year-low on April 22 of $1.2296 and then a 2-1/2-year high of $1.3384 on Sept. 24.

The survey showed 89% of all respondents said the strong pound affected their fund’s returns.

Sterling strength helped UK fund managers better afford investments priced in dollars, it said.

Only about 6% of fund managers said they hedge between 75-100% of their investment portfolio against currency risk.

The largest proportion of fund managers said they hedge between half and three quarters of their holdings.

The largest amount of respondents said they put on currency hedges lasting between four and six months.

UK hedge fund managers hedge more than their U.S. counterparts by 9%, the survey showed.