It was almost inevitable that a Leave victory at last month’s EU referendum would have negative consequences for UK assets, but the degree to which sterling has plummeted in value is quite remarkable. 
Indeed, according to a YouGov poll prior to the vote, there was a sense among voters that though Brexit would have ramifications, they would mainly be limited to banks or ‘overpaid’ City workers rather having any real negative effect on the average Briton.
However, the shock result at last month’s referendum put the market into a real spin as most had priced in narrow Remain vote – and the consequences are far more widespread than many outside of this industry may have imagined.
That is because the first part of the market to feel the full force of shock was currency, as sterling immediately fell to its lowest level relative to the US dollar in more than 30 years.
Performance of sterling in US dollars in 2016
Source: FE Analytics
Not only did the vote mean many thought the UK economy would come under pressure, but Bank of England governor Mark Carney’s soothing tones last week have forced the pound lower as he has hinted at an interest rate cut and more quantitative easing.
“Before Mark Carney’s speech, the FTSE and sterling were broadly flat on the day. Following the governor’s words, the FTSE has just closed within a whisker of its highest level year-to-date, while sterling has lost a cent and a half against the dollar and more than a cent against the euro,” Ben Brettell, senior economist at Hargreaves Lansdown, said.
“Stock markets clearly love monetary stimulus far more than they hate Brexit-related uncertainty.”
Though the strength of the pound is usually shown against dollar, the Brexit vote has meant it has weakened considerably compared to all other major currencies.
Therefore, unless one is going on a trip to Krakow like FE Trustnet editor Gary Jackson (the Polish zloty has crashed in sterling terms as the vote was seen as negative for the country’s trade), holidaymakers are facing a far more expensive summer break than first anticipated.
So, which currencies have strengthened the most and least since last month’s referendum – and therefore offer investors the best spending power on their holidays.
Relative performance of currencies versus sterling since Brexit Friday
Source: FE Analytics
Out of a collection of 16 major currencies around the world, sterling has weakened by some 9.5 per cent on average over the past weeks as foreign investors have become nervous about the outlook for the UK economy.
As the table above shows, when it comes to relative spending power, it seems Sweden is the best destination given sterling has ‘only’ depreciated by 7.19 per cent against the Swedish krone since the Brexit vote.
Also, while £1,000 will only buy you €1,120, the likes of Spain, Italy, Greece, France and Portugal still look relatively attractive given the pound is ‘only’ down 7.98 per cent relative to the euro.
The other currencies that sterling has ‘only’ fallen by less than 9.5 per cent include the Norwegian krone, the Swiss franc, the South African rand, the Australian dollar, the Canadian dollar, the New Zealand dollar and Chinese renminbi.
The fact that the pound fell to its lowest level compared to the US dollar since 1985 on the morning of the referendum aftermath had an immediate effect on North American funds.
According to FE Analytics, the average member of the IA North America and IA North American Smaller Companies sector returned 5.26 per cent and 5.83 per cent in sterling terms on Brexit Friday, while all but three of the 135 portfolios in those two peer groups made a positive return that day.
However, those returns were almost completely due to currency movements. Indeed, the IA North America sector lost 3.14 per cent in US dollar terms, while the IA North American Smaller Companies sector fell 2.61 per cent in US dollars.
This dynamic is better illustrated when you look at the performance of the 10 highest returning US funds on Brexit Friday – a list that includes JOHCM US Small & Mid Cap Equity, The Boston Company US Opportunities and Smith & Williamson North American Equity.
Best performing North American funds on Brexit Friday in sterling and US dollar terms
Source: FE Analytics
The average return across the 10 funds that day in sterling was 10.3 per cent, but in US dollars the average return was just 1.5 per cent – showing that the prices of underlying shares didn’t move too strongly on the back of the vote.
While the pound is down 10.04 per cent against the dollar over that time, there are other countries where holidaymakers have seen their spending power diminish more than in the US.
For example, those planning on travelling to this year’s Olympics will be very frustrated as the pound has fallen some 14.04 per cent against the Brazilian real since the EU referendum. The pound has also fallen more against the Malaysian ringgit and the yen than the US dollar.
Again, this trend is borne out in the performance of funds since the Brexit vote.
Best performing funds since Brexit Friday
Source: FE Analytics
Apart from the six gold mining funds (which have benefitted from a 16 per cent rally in the gold price in sterling terms since the referendum as investors have searched for a store of wealth), all but one of the top 15 performing portfolios over that time focus on Japanese or Brazilian equities.
These include Invesco Perpetual Japanese Smaller Companies, Legg Mason IF Japanese Equity, JPM Brazil Equity and Stewart Investors Latin America as well as Neptune Emerging Markets – which has 6.4 per cent in Latin America, as well as 28 per cent in India (the pound has fallen 9.9 per cent against the rupee).
As such, the best performing IA peer group since the Brexit vote has been Japanese Smaller Companies and Japan with returns of 11.89 per cent, while the average Brazil/Latin America fund has made 13.75 per cent in sterling terms.