Firstly thank you to those of you who have actively engaged with us over our investment decisions regarding the outcome of the Referendum.
We all know that 23rd June is a very important day in British history and one that will have both short and long lasting consequences whichever the result.
Recent polls have shown that “Remain” has a knife-edge lead as Britain enters the final three weeks of the campaign. However, various polls are now predicting a ‘Leave’ win in the referendum. YouGov tell us that 41% plan to vote to remain in the EU vs. 45% who plan to vote to ‘Leave’ and TNS tell us that 41% plan to vote to remain in the EU vs. 43% who plan to vote to ‘Leave’ .‘Remain’ may still be ahead in some polls and the betting markets; but the margin is narrow due to the significant swing towards ‘Leave’ in the last week.
In previous polls, up to 47% leaned towards Remaining while 32% leaned the other way. In this latest poll, undecideds are nearly evenly split with 36% leaning towards staying in the EU and 33% towards Leave.
It was the early and comfortable lead for ‘Remain’ that lead us to feel de-risking may be unnecessary but a valuable option to clients wishing to exercise it.
This movement has now clarified our thinking over the issue of de-risking portfolios.
We think that the election is now very close but the downside risk of a ‘Leave’ result is bigger than the upside gain of ‘Remain’. With this in mind we will action any clients request to de-risk their portfolios that we receive today.
We are recommending for those clients wishing to de-risk portfolios that we switch out of only the asset classes most affected by Brexit namely UK and European equity funds and switch to 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.
We are concerned that a fall in the value of GBP will result in investors having to pay more to buy back overseas assets. However UK equity would not be affected by this.
We are concerned that UK property funds have moved for a temporary period to a bid price basis to quell outflows. This means property funds have seen a 5% fall in unit prices until the price structure reverts to offer and the 5% reduction removed. Therefore, now is not a time to sell out of UK commercial property.
Clearly much can change over the next 17 days of campaigning. We understand that any strategy could be proved a wrong one in hindsight, but with the current evidence, the de-risk of UK and European equity assets to cash funds until we know the outcome is not unreasonable.