The recent weeks have been challenging for global investors, with the S&P 500 experiencing significant losses. The reasons behind this downturn are quite evident, ranging from escalating trade tensions to the looming threat of a recession, and the realization that the narrative of US exceptionalism may be faltering.

However, another factor has exacerbated the losses for UK investors. The depreciation of the US dollar against other major currencies, including the pound, has diminished the returns made in dollars when converted back into sterling. This has effectively magnified the underlying losses in the US market.

Looking at the numbers, the impact of this currency shift has been substantial. By March 24, the S&P 500 had declined by 3.6% in dollar terms for the year 2025. For UK investors, this loss translates to 6.4%. A similar trend can be observed in the MSCI World index, leading to even greater losses for US and global funds during the market sell-off.

For instance, the Baillie Gifford Global Discovery and JOHCM Global Select funds have both experienced significant declines in sterling terms, with a notable portion attributed to currency fluctuations. While this may offer some reassurance amidst the market turmoil, it also underscores the importance of considering currency hedging strategies.

Currency-hedged tracker funds, such as the iShares Core S&P 500 ETF GBP Hedged, can help mitigate the impact of currency fluctuations on investment returns. However, it’s essential to recognize the trade-offs involved in hedging, including potential missed opportunities for gains if the dollar strengthens.

Ultimately, diversification remains a prudent approach to navigating market volatility. While US markets may be struggling, European, UK, Japanese, and emerging market equities have shown resilience. Maintaining a well-balanced portfolio across different regions and asset classes can help cushion against market fluctuations, even though determining the optimal mix can be challenging.

In conclusion, staying diversified and informed about market developments is key to weathering market uncertainties. By staying vigilant and adaptable, investors can position themselves to capitalize on opportunities while mitigating risks in an ever-changing financial landscape.