Waverton's Reaction to Brexit
As you will be aware, the population of the UK has voted to leave the European Union. This was not the outcome global markets have been positioned for; at the time of writing, sterling has fallen approximately 7% against the Dollar and global equity markets are down between 4-7%.
The vote will result in a period of both political and economic uncertainty, principally for the European region, although given the interconnectedness of the global economy its effects will undoubtedly be felt more broadly. It is possible that the UK will endure a period of slower economic growth in the coming quarters, while continental Europe could see a rise in Euroscepticism and with peripheral countries in particular seeking their own referenda.
We have been cautious on markets and risk assets this year, partly as a result of heightened concerns about political risk. We expect our higher allocation to cash and reduction in exposure to equities to help insulate portfolios from the immediate effects of the vote on risk assets. From a portfolio construction perspective, we have positioned portfolios increasingly internationally and as such they should benefit from the weakness of sterling. Furthermore, we expect our addition of risk-reducing assets such as Gold, US Treasuries and long dated gilts, coupled with our preference for high quality, internationally-exposed companies, to provide further diversification benefits.
Our broad strategy will be to buy quality equities, principally in the UK, when the right opportunities arise; firstly out of our carefully husbanded cash reserves and secondly out of bonds if there is a significant spike up in prices. These companies will gain from the significant fall in sterling, while their business models ought not to be materially affected by yesterday’s vote.
The views and opinions expressed are the views of Waverton Investment Management Limited and are subject to change based on market and other conditions. The information provided does not constitute investment advice and it should not be relied on as such. All material(s) have been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.
Changes in rates of exchange may have an adverse effect on the value, price or income of an investment.
Past performance is no guarantee of future results and the value of such investments and their strategies may fall as well as rise. Capital security is not guaranteed