Hi - just trying to get some advice around the potential effects of currency risk with over exposure to USD. I have read some great insights about this on some threads in this forum but am still not quite fully understanding so hopefully you will be able to shed some light even further.
With the GBP generally low and working under the assumption we have no idea which way it will go in the future I was hoping to get your thoughts on how to reduce this currency risk as I have a high percentage of USD holdings.
Just to quickly outline my current portfolio standings;
65% of my holdings are USD (mainly in ETFs where USD dominates – e.g. S&P 500), whilst only 7% are GBP (the rest all different currencies but I am mainly asking around USD-GBP).
My thoughts around how I might lessen the effects of currency risk are as follows;
I currently have a large holding in VWRL (20%). If I switched this to a GBP hedge version of a similar etf - IWDG, I think this would change my exposure to 53% USD to 26% GBP? Does that sound about right - if so is still too much USD?
I invest monthly, as I am buying regularly - will this negate some of the currency risk as I will in effect be buying at all different times of currency fluctuation (when the dollar is stronger and weaker over time?)
Finally, the area I probably understand least (apologies if I am missing the obvious here), I have read on here around buying ERNU to negate some currency risk as it effectively tracks USD/GBP - how does this work? How does it create a type of USD pot? How does it help with USD exposure? With my current portfolio if the GBP strengths then my holdings will reduce in value - what will happen to the value of ERNU if the GBP strengthens (and why?).
Is this the same concept of USD bonds - for example I have seen VUCP suggested, will this help with exposure to USD (and if so how?) or will it make my exposure to USD worse?
To summarise, say it was accepted that I wanted to achieve some protection to exposure to USD, what would be an approx % of IWDG, or ERNU or VUCP to even out to an ideal level?
Appreciate a lot of questions there but can’t quite get my head around it at the moment!
Thanks in advance!