UK starts divorce proceedings against EU, investment latest!

I have been hard at work this morning reviewing around 20 of the leading fund manager’s comments on the BREXIT vote.

The first comment to make is that at the time of writing, many of the ‘expert’ forecasts of the immediate impact of such a result on currency and equity markets appear Bunkum. For example, only three days ago George Soros predicted that such a vote would lead to a drop for the currency of at least 15%. At the time of writing the US Dollar/GBP Sterling exchange rate is trading at 1.39 vs 1.48 at yesterday’s close and 1.47 at the start of 2016. So the fall from yesterday is currently 6%.

Similarly, UBS forecasted on Wednesday this week that the FTSE 100 could fall after a Brexit Vote to as low as 4,900. At the time of writing the FTSE 100 stands at 6030, a fall of 5% from yesterday’s close and similar to the close of the previous week, of 6021.

A common theme of this referendum is that ‘expert’ views by Politian’s, financial commentators and pollsters have been wrong. Looking forward what we can say however is that we are likely to see significant volatility in markets as they hate uncertainty and change.

On the other hand Neil Woodford stated “I remain confident that the portfolio will deliver the returns we have targeted over the three-to-five year time horizon that we continue to focus on”

Our policy of diversification, holding 50% of equities in global non UK markets, having significant property (UK and international) investments and encouraging clients to hold cash rather than fixed interest funds will we believe remain a good one in the months ahead.

UK Bonds
The consensus is that UK bonds will decrease in value due to the perception that the UK is a weaker place to put your money. If you believe the pound will weaken dramatically then you would expect the BOE to intervene with higher interest rates. On the other hand if we go back into recession the bank may even lower interest rates although there is precious little scope for this. Overall our stance of holding minimum fixed interest in our portfolios remains.

UK Equities
If the pound falls it will favour UK exporters. The FTSE 100 is mainly an international portfolio of shares so to some extent is insulated from the worse fall out of European trade restrictions however the 250 and smaller companies may well suffer.

International Equities
We are not confident about European stock. We tend to concentrate on the effect of BREXIT on the UK which ignores the effect on the EU. The EU is a 50 year old experiment and this could be the beginning of the end for it as other social experiments have failed in the not too distant past. Until the fall out has finally settled (and that could easily be 10 years) investments are in for a bumpy ride.

Away from Europe the previous fundamentals continue, not great but not a disaster either.

Commercial Property
We will be looking closely at the commercial property exposure, it has done very well for us in recent years however lack of international investment and perhaps a down turn in economic activity doesn’t auger well for funds particularly those in the high margin cities such as London. Now may be a time to look more at the mundane, which tends to continue to provide reasonable returns within a provincial environment.

Cash
We have been encouraging clients to be heavy in cash at the cost of fixed interest. It isn’t a long term solution unfortunately however if interest rates rise then the security of cash may be very attractive. Now is perhaps a good time to remind clients of the limit to non NS&I investment security at £75,000. Barclays share price is currently down 20%.

Summary
We will be reviewing the markets next week to gauge a good time to invest all planned phased investments.  If you wish to take any action as a result of our comments do get in touch as soon as possible.

If you wish to take any action as a result of our comments do get in touch as soon as possible.