11th September 2026
There have been tomes written about the unintendedly or potentially inadvertently concentrated / skewed asset allocation that results from using a passive market cap-weighted approach to global equity investing. What began as a well-meaning, low-cost exposure to a diversified range of global companies has become very different over the past decade such that passive solutions are no longer as diversified as one might presume. A very large percentage is now exposed to the AI trend, whether that is the hyperscalers in the US equity and bond markets or the semiconductors in the Asian and Emerging Market equity indices (see Ben Mackie’s recent note here). The consequence of this trend is that traditional balanced 60/40 equity/bond benchmarks result in an equally high exposure to that one theme. But what isn’t talked about as much is the consequential high allocation to the US dollar that investors are exposed to – particularly given equity allocations are rarely FX-hedged. While the greenback has enjoyed a long run as the world’s reserve currency, relying too heavily on that past relationship continuing given the parlous state of the US government finances and the lack of desire to address the fiscal deficit ($40 trillion and counting!) might be overly optimistic.
A quick calculation shows that for a sterling investor an unhedged passive 60/40 equity (MSCI World Index)/bond (Bloomberg Global Aggregate Index) portfolio carries 61% exposure to the US dollar. Our Hawksmoor Vanbrugh fund by comparison currently has just 12% allocated to the US dollar, Hawksmoor Distribution 11% and Hawksmoor Global Opportunities 17%. It is worth reminding readers that we are not macro specialists and do not construct portfolios based on a macro view. Instead, we seek to build portfolios that are diversified to withstand a variety of scenarios. We are therefore merely highlighting the unintended risks of a passive approach for both equity, bond and currency exposures. We would simply rather have a diversified portfolio across different equity, bond, property, infrastructure assets, and currencies and highlight that we are very comfortable with our very low absolute and relative exposure to the US dollar across our multi asset funds.
Given our unconstrained investment process, we are not reliant on the US stock market for returns. We can invest closer to home in the case of UK smaller companies where valuation is compelling and across other geographic markets with different economic engines such as European manufacturing or Japanese corporate reforms. Although the fiscal situations in the UK, Europe and Japan are no better than in the US, there seems more of an acceptance by these central banks of the need for higher interest rates to combat inflation. Similarly, politicians in these jurisdictions seem more cognisant of the bond vigilantes and the market pressure to deal with fiscal deficits. There is therefore a possibility that sterling, the euro and the yen appreciate against the dollar as investors seek higher interest rates. We also have an allocation to emerging markets where their currencies will benefit from a weakening dollar as this lowers the cost of servicing their hard currency bonds (debt issued in US dollars) and also has benefits for inward capital flows.
It is worth highlighting why equity exposure is almost always left unhedged by professional investors. Companies usually have overseas earnings and the boost these get from a weakening home currency acts as a natural hedge. In the case of the US equity market, many of their businesses are large multi-nationals that have high overseas earnings which benefit from a weaker dollar. But we recognise that the US economy itself is relatively closed – so some companies won’t benefit and indeed may suffer if they have to import from overseas as part of their supply chain.
The biggest pushback against having a low dollar allocation is that it has traditionally acted as a safe haven during a market crash. Our safe haven currency sits outside the fiat currency system entirely. Instead of anchoring our safety net to the US dollar, we maintain a strategic 5% allocation to physical gold within our cautious fund, Vanbrugh. Unlike the dollar, gold can’t be printed by a central bank. It carries zero sovereign debt risk, and it provides a far more robust shield against global inflation and geopolitical shocks.
We also have an allocation to real assets such as infrastructure, property and commodities. In an era of historic high US debt levels and massive structural deficits, the risk is that the US enters a period of financial repression by keeping interest rates below the rate of inflation that chips away at the dollar’s purchasing power. By diversifying out of the dollar and into hard assets, we build an organic hedge against US-specific inflation shocks. This is exactly where our 5% gold allocation shines—acting as a real-asset anchor while the US dollar faces long-term structural headwinds.
A low USD allocation doesn’t mean abandoning the US entirely. A decent chunk of that 12% dollar exposure is in short-dated US TIPS that will also capture higher rates of inflation. We also own excellent actively managed US equity funds in Smead and De Lisle that come with some dollar exposure, as well as some look through exposure from our Insurance and Biotechnology sector funds. We also hold a shipping investment trust and specialist life science private lender that are both denominated in dollars.
We monitor our currency exposure closely – and ultimately it falls out of our underlying valuation work. But we are very much cognisant of our investor base having sterling liabilities – and hence we are very happy with low dollar exposure given the headwinds we believe the currency faces.
Daniel Lockyer – Senior Fund Manager
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For professional advisers only. This article is issued by Hawksmoor Fund Managers which is a trading name of Hawksmoor Investment Management (“Hawksmoor”). Hawksmoor is authorised and regulated by the Financial Conduct Authority. Hawksmoor’s registered office is 2nd Floor Stratus House, Emperor Way, Exeter Business Park, Exeter, Devon EX1 3QS. Company Number: 6307442. This document does not constitute an offer or invitation to any person, nor should its content be interpreted as investment or tax advice for which you should consult your financial adviser and/or accountant. The information and opinions it contains have been compiled or arrived at from sources believed to be reliable at the time and are given in good faith, but no representation is made as to their accuracy, completeness or correctness. Any opinion expressed in this document, whether in general or both on the performance of individual securities and in a wider economic context, represents the views of Hawksmoor at the time of preparation and may be subject to change. Past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you originally invested. FPC26761.
