I have some income stream in GBP that I wish to invest in predominantly emerging market equities. For simplicity let's just consider the case where I wish to receive the cash flows from the investment again in GBP, and don't worry about the fact that my USD notional will vary/assume it's constant.
1) The best way I thought of doing this would be via US ETFs, since they are highly competitive (cost-wise), liquid (as far as ETFs around the world go) and transparent. Whereas with US ETFs even with quirky ones I can look up the last trading day and see at least 5 prints per day + rough estimate of the general book by looking at BATS, with ETFs listed in LSE most have prints in a useless interval like once a week, and frequently the exchange spread is so high that it's just a saw-tooth pattern depending on if each trade was on the bid or on the ask.
Let me please know if you have any better idea, as far as the equity bit is concerned.
2) Given I'd like to invest in US ETFs, I need to fund them. I have an Interactive Brokers margin account that would obviously allow me to borrow USD against my GBPs, but the time-frame of this investment is say 3 years, so the rough cost of 2% per year is a bit too high as far as this enterprise is concerned.
Hence I figured I would convert my pounds into dollars and use the proceeds for investment. That being done, I don't want to take the risk in GBPUSD in this investment, and hence want to hedge back into GBP.
The key question: How to do this in the most reliable and cost-efficient manner?
What I thought of so far:
3) I could do cash FX trade within IB, but that's going to cost similar amount as the USD-borrowing exercise above.
4) Futures (even minis) not possible -- the size of this particular project will be from 5000 GBP to 20 000 GBP for the next 2 years
5) Currency ETFs -- there is a myriad of ways to use these and none of these is more efficient than the USD borrowing exercise in the first place
6) Current favourite: Hedge via transaction with some bucket shop like Oanda that has small min. transaction size and the increments are very granular.
The only issue with this is the reputation of these bucket shops. I won't use them for scalping or short-term trading, so it wouldn't hurt me much if I paid in total e.g. 50 pips per trade. But it has to be reliable over the long run -- I need to be sure that my money there is safe for several years and any profits from the hedges I can actually realize, i.e. I can safely withdraw them.
I haven't got much experience with these bucket shops, but the opinions on them seem to be mixed, so I am a bit concerned about relying on one or more of them for like 3 year period when I could be naked in reality.
To conclude, I would be grateful for any of your ideas on how to solve this problem.
Thanks
1) The best way I thought of doing this would be via US ETFs, since they are highly competitive (cost-wise), liquid (as far as ETFs around the world go) and transparent. Whereas with US ETFs even with quirky ones I can look up the last trading day and see at least 5 prints per day + rough estimate of the general book by looking at BATS, with ETFs listed in LSE most have prints in a useless interval like once a week, and frequently the exchange spread is so high that it's just a saw-tooth pattern depending on if each trade was on the bid or on the ask.
Let me please know if you have any better idea, as far as the equity bit is concerned.
2) Given I'd like to invest in US ETFs, I need to fund them. I have an Interactive Brokers margin account that would obviously allow me to borrow USD against my GBPs, but the time-frame of this investment is say 3 years, so the rough cost of 2% per year is a bit too high as far as this enterprise is concerned.
Hence I figured I would convert my pounds into dollars and use the proceeds for investment. That being done, I don't want to take the risk in GBPUSD in this investment, and hence want to hedge back into GBP.
The key question: How to do this in the most reliable and cost-efficient manner?
What I thought of so far:
3) I could do cash FX trade within IB, but that's going to cost similar amount as the USD-borrowing exercise above.
4) Futures (even minis) not possible -- the size of this particular project will be from 5000 GBP to 20 000 GBP for the next 2 years
5) Currency ETFs -- there is a myriad of ways to use these and none of these is more efficient than the USD borrowing exercise in the first place
6) Current favourite: Hedge via transaction with some bucket shop like Oanda that has small min. transaction size and the increments are very granular.
The only issue with this is the reputation of these bucket shops. I won't use them for scalping or short-term trading, so it wouldn't hurt me much if I paid in total e.g. 50 pips per trade. But it has to be reliable over the long run -- I need to be sure that my money there is safe for several years and any profits from the hedges I can actually realize, i.e. I can safely withdraw them.
I haven't got much experience with these bucket shops, but the opinions on them seem to be mixed, so I am a bit concerned about relying on one or more of them for like 3 year period when I could be naked in reality.
To conclude, I would be grateful for any of your ideas on how to solve this problem.
Thanks
