An opportunity to review your portfolios ahead of the UK Referendum on membership of the EU
- Monday, May 22, 2017
Last week was significant in the Brexit debate. Both Mark Carney, the Governor of the Bank of England and Christine Lagarde, the head of the International Monetary Fund (IMF) expressed their fears for the UK economy if we leave the EU. Soon after these announcements were made, markets took on board the warnings with the FTSE 100 dropping in value. This volatility being the first falls due to the uncertainty ahead of the 23th June Referendum.
As financial advisers and investment managers we want to be proactive ahead of the referendum on the UK membership of the EU. While we stand outside and independent of the political arguments for remaining or leaving, we do have a responsibility to alert investors of the potential volatility that can be expected in markets in the run up and aftermath depending upon the result.
It is common for investment portfolios to rise and fall as economic events change. These changes can be sudden and unexpected but portfolios will over time revert to an expected mean return. It is for this reason we rebalance every six months to maintain portfolio risk control.
However, with the Referendum we know in advance of the uncertainty. For this reason we want to offer investors the choice and opportunity to either maintain or de-risk portfolios in the run up to the referendum.
Already we have seen £Sterling loose value over the past six months and expect equities in the UK and Europe to drop off as the 23rd June approaches particularly if the ‘Leave’ campaign is ahead. Markets do not like uncertainty and will be sensitive.
It is difficult to predict an outcome or its implications, but our expectation is that markets can be volatile up to a close election. We would anticipate markets will rise on a ‘Remain’ outcome but fall on a ‘Leave’ outcome.
For those clients wishing to de-risk portfolios we would suggest only switch out of the asset classes most affected by Brexit namely UK and European equity funds and switch to a cash funds for a temporary period, reverting back to your usual portfolio either after the result or at our next rebalance in July.
We are not recommending moving out of any other asset classes such as fixed interest securities, commercial property or oversea equity other than European.
With any course of action there is no certainty that a switch will prove to be beneficial, but we want to offer the choice. We don’t expect that the potential volatility of a ‘Leave’ result will be anywhere as significant as we witnessed in January or last August.
We are offering clients two options.
Option 1 – Remain fully invested in your selected portfolio.
If you wish to remain invested you do not need to take any action
Option 2 – De- risk your portfolio by switching your UK and European equity holdings to cash or cash equivalent funds for a temporary period.
You only need to If you select Option 2 we will return you to your original portfolios if ‘Remain’ win in the days after the Referendum, but if Leave win we will continue to hold the portfolio in cash or cash equivalent funds until our next rebalance request in July.
Our feeling is that, if ‘Remain’ win a market rebound will occur and cash investors will miss the rise. If ‘Leave’ win and markets drop, cash investors will miss these falls. It is therefore worth checking the voting intension polls as they may give an indication over which option to select.
If you wish to take advantage of this offer then please complete the reply sheet and either post or email back to us by the deadline of Monday 6th June. We will action your request then on Tuesday 7th June. Any requests to switch received after Monday 6th June cannot be actioned due to trade timing constraints.
Please think carefully about your choice as once we have received your instructions we will action them.
Chris DaviesChartered Financial Adviser
Chris is a Chartered Independent Financial Adviser and leads the investment team.