In March I wrote a piece about Brexit for Ftadviser.com (Brexit: a leap in the dark, 10 March 2016) which goes into some of our thoughts around the issue. In summary at the time the PortfolioMetrix view was:
At the time polls were roughly evenly split and the bookies had a 31% chance of the UK voting for Brexit. Since that article there has been some evolution in events and the debate:
Perhaps things are a bit clearer than when I originally wrote the article, but not by too much.
The one thing we think hasn’t changed at all is the correct approach to take from an investment portfolio point of view. Happily, this is our default position which is to make sure that portfolios are diversified (across difference countries, regions, sectors and funds) so that they can handle both possible vote outcomes (leave or remain) and also the myriad of eventualities that could result from each vote outcome.
Crucially, given we hold a blend of UK and overseas equities in portfolios, we are also diversified by currency (the most obvious risk associated with the EU referendum). Overseas holdings, in non-sterling currencies, to some extent protect clients in the case of an Out vote and a sharp fall in sterling, whilst our UK equity holdings ensure that in the event of a Remain vote, clients don’t suffer the opportunity cost of being completely left behind in the event of a sterling and domestic focused equity rally.
Pragmatic diversification is perhaps a less “sexy” strategy than the (over) confident “put all your chips” on red (leave) or black (remain) that some market commentators espouse, but we are looking after client’s long term savings and our first job is to make sure that if the unexpected happens (as it so often does), client portfolios aren’t irreparably damaged by short term events.