I am starting to lose track of the number of posts I have written about Brexit since the surprise of the referendum result over three years ago, so drawn out has been the process of actually leaving.
Whilst we are not in the business of making short term predictions, I am willing to speculate that the volume in the media and in conversation will reach new and deafening levels in the next few days as we approach yet another scheduled leaving date.
As a counter to the noise I thought it worth sharing again how we are thinking about this issue specifically with our clients’ investments in mind.
So in no particular order, a few reminders you might find useful:
Economy does not equal markets
Many will attempt to link economic news with movements in the prices of financial assets and therefore their portfolio. Whilst it is true that there is a fundamental link in the long term, it is often the case that the anticipated short term impact is not observed. 2009 is a case in point, when stock markets enjoyed a stellar year whilst the global economy was in the thick of a mighty recession. Bad news in the economy does not mean bad news for your portfolio.
Devaluation of Sterling might be good for your portfolio
There is no evidence to justify a home bias in a portfolio. As a result, our portfolios are properly geographically diversified (unlike most of the professionally constructed portfolios we are asked to review by new or prospective clients). This means that the majority of our stock exposure is denominated in non-sterling currencies. Any further devaluation of Sterling resulting from a turbulent exit will mean an immediate uplift in these stock valuations (the opposite is also true). Our clients have already benefited, when Sterling fell against global currencies on the 2016 referendum result, our portfolios surged ahead.
You are not invested in the UK or the FTSE 100
Ok this one is not strictly true but UK exposure accounts for c12% of the stock position of your portfolio. Whilst it may seem like the only issue in town, Brexit is only one of so many out there for global investors to consider, Trump’s trade war with China, Turkey’s military ambitions in Syria and North Korea’s missile programme to name but a few. Another reason to remain highly diversified. Our portfolios are spread across tens of thousands of stock and bond securities covering the whole of the investable world. If the FTSE 100 is reported down on the radio this evening, your globally diversified portfolio of stocks and bonds could very well be up.
It isn’t different this time (it never is)
Equity and bond markets have consistently delivered inflation beating returns for over a hundred years. During this period economies and markets around the world have come through significant challenges and they will do again. It seems that according to some ‘experts’ its different this time, every time!
You have a robust plan
We have implemented a portfolio for you which best fits with your financial plan. Part of the process is to ensure that your plan can withstand short term portfolio fluctuations. This is called building ‘risk capacity’. If markets fall due to unanticipated Brexit (or any other) news, your plan is ready and able to allow the portfolio time to recover.
Noone has a secret solution that you are missing out on
As ever there are plenty of opinions out there in the active investment community about what best to do right now. Underweight UK stocks, move to cash, invest in rare whiskey? Some will be right and some will be wrong, the trouble is, by definition, they cannot know what is going to happen as they have no crystal ball. We will only know who made the right call in hindsight. Those who do get it right will be declared geniuses even if they are not quite sure why they got it right in the first place and so we go round again. It all seems pretty speculative (and expensive) to us so we don’t let predictions, emotions or our own cognitive biases anywhere near your portfolio. Only science and evidence has a place in our process and the evidence shows that short term speculative positioning in a portfolio doesn’t end well.
Nothing new here for those who know us well. It is really encouraging for us that we have not had a single conversation with anyone considering intervention in their portfolio because of short term worries around Brexit. Long may that continue! This means either they trust us and our investment process or they are too busy getting on with living truly successful lives to be worrying about things they cannot control. Whatever the reason is, the result will be successful investment outcomes for them all.
If you do find the volume is becoming uncomfortable, you could always take a break from the news. If that is just too hard to contemplate, please give us a call if you are worried, we would love to talk to you about it.
Posted by: Matthew Kiddle | Posted in: News