Falls in the dollar may have made it more difficult to reconcile investment returns in sterling terms, however, there are some investments able to withstand the pressure.
Murgitroyd, an Alternative Investment Market-listed provider of intellectual property (IP) legal services is finding plenty of work from US clients despite the massive depreciation in the value of the dollar against both the pound and the euro.
Roughly half the patents filed in Europe are done so by US and Japanese firms, with the remainder heavily represented by EU multinationals, says Keith Young, chief executive.
”The exchange rate makes it more expensive for US clients to us Murgitroyd or any other European service provider. But, companies still require IP protection.”
Building office representation in EU member states responsible for most development of registered IP is the company’s goal.
Recent interim results show a 36% increase in pre-tax profits to £336,000 compared with the same period last year.
The effects of exchange rates on returns can be seen in other examples such as FTSE Small Cap and TechMARK index-listed Surfcontrol, the market leader in software which controls access to websites and blocks emails containing illegal material.
Doing most of its business in the US, the company, which has a market capitalisation value of £168m, reported a 14% increase in quarterly sales to $22.5m as against $19.7m in the same period last year for the period ended 30 September.
During the same period, that is, July, August and September 2004, the dollar swung in a value band between $1.77 to $1.87 per £1, according to Bloomberg cross-rate figures.
Thus, Surfcontrol’s quarterly sales in sterling terms took a 5% hit over the quarter itself – even though the sales trend was positive.
Although overall sales were up compared to the year-earlier period, the then more robust dollar rate of $1.56 means sales figures were pulled back about 15% for currency reasons alone when comparing the quarters.
Currencies are felt in the FTSE 100 too, with companies such as HSBC and BP doing most of their business outside the UK.
Hedging helps, although the expense and complication of doing so may mean some smaller companies do not bother: either way, investors should remember to pay attention to the underlying business performed and whether this is an issue affecting total returns in sterling terms.IFAonline
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