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Sun, sea and a favourable currency

Jonathan Wright

Jonathan Wright - Fidelity Personal Investing

It might not feel like it, but the traditional summer holiday season has now started and tourist resorts, both home and abroad, will be hoping for a buoyant summer.

Sun, sea and a favourable currency

However with Brexit casting a shadow over our holiday plans, it is no surprise to see that British holiday makers are taking a more tentative approach to booking. This year Thomas Cook has noticed it’s taken a customer an average of 15 visits to its website before booking compared to an average of 11 visits last year. It seems this year we are putting the time in to do some more thorough research.

But it doesn’t appear Brits have abandoned going abroad altogether. According to the latest Thomas Cook Holiday Report, over a quarter of Brits claim an overseas holiday is higher on their spending priorities compared to last year, while only 8% say it’s lower.

One factor that plays a key role in the cost of a foreign break is the currency exchange rate. Since the EU referendum in 2016, the pound has fallen against many currencies but particularly the two major currencies that affect the majority of our summer holiday destinations - the US dollar and the euro.

According to Thomas Cook, this year almost half (43%) of holidaymakers say that they are likely to travel outside of the EU compared to the last couple of years and nearly half (47%) of all Thomas Cook packages holiday bookings are to locations that don’t have the euro. That’s up 10% compared to last year.

Visitors to Turkey this summer should notice more liras in their pocket as the pound is up over 37% against the Turkish lira over the past 12 months. It appears this has not gone unnoticed by holiday makers as Turkey is now the second most popular destination overall for British holiday makers, with a quarter of all Thomas Cook Airlines’ bookings to the country.

Based on UK tour operator bookings up to 28 February this year, the top five summer destinations in order of popularity are Spain, Turkey, Greece, the USA and Cyprus.

While not as much, the pound has also appreciated 15% against the Tunisian dinar over the same period and sure enough, now that the Foreign Office has changed its travel advice on the country, Tunisia has jumped three places to Thomas Cook’s seventh most popular destination.

Be flexible to go where the opportunities are

This week both the Federal Reserve and the Bank of England have confirmed interest rates, over the short-term at least, aren’t about to jump upwards. The Bank of England has suggested rate rises will be “limited and gradual”. That’s important to know as rising interest rates help to strengthen a country’s currency as global investors move money around to secure the best interest rates.

Like the travel industry, stock markets are also highly susceptible to global interest rates and the knock-on effect it has on the world’s major currencies. So, as an investor, it’s important to position your portfolio so that you don’t get caught out by fluctuations.

One strategy is to maintain a geographically diversified portfolio so that you can benefit whatever direction the pound takes. By casting your net out further, so you’re not just reliant on the fortunes of UK-based companies, you can also gain from opportunities in some of the world’s more emerging as well as more established markets.

Fidelity’s Select 50 list of preferred funds contains a selection of globally diversified funds. In the same way as many Brits have chosen a bargain break outside the eurozone this summer, by having a global remit, the managers of these funds have the flexibility to seek out the best value for investors wherever in the world that may be.

The Rathbone Global Opportunities Fund, which currently holds around 65% its assets in the US, features a relatively concentrated portfolio of company names and prominent positions in consumer-related global leaders, like Amazon, Tencent and Visa.

The Fidelity Global Dividend Fund, currently one of Tom Stevenson’s Fund Picks for 2019 offers an alternative for investors seeking geographic diversification alongside additional income. With around 80% of the fund invested outside the UK, this fund targets high quality, global companies with attractive income streams.

More on the Fidelity Select 50

Important information

The value of investments and the income from them can go down as well as up, so you may not get back what you invest. When investing in overseas markets, changes in currency exchange rates may affect the value of your investment. The Select 50 is not a recommendation to buy or sell a fund. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. Fidelity Personal Investing does not give personal recommendations. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.