Clever ways to balance your Brexit investmentsPosted on: 18 April 2019 by Peter McGahan
Many people are unaware how actively (or not), their investments are being managed or how exposed they are given the exceptional circumstances we are in with Brexit.
The annoying mosquito that just seems to never go away, but you know is full of trouble if you don’t deal with it. That is Brexit.
Achieving a balance across your investments is no easy task given the complexity of the choice of no deals, no Brexit and, well, anything is possible given the whole extraordinary fiasco.
Many of you may not be aware how actively (or not), your investments are being managed, and how they are being diversified (or not), given the exceptional circumstances we are in.
How exposed are you in your ISA’s, pensions and investments to smaller companies and Mid-Cap stocks in the UK for example, and what happens to the aforementioned stocks at the first sign of a deal that is sane?
Apathy will not be helpful to your portfolios here, as many managers simply do not manage the money, instead investing according to benchmarks and allowing the capital to fester rather than prosper.
Let’s set aside the fear written about by the ‘sponsored’ columnists whose sole desire is to serve their sponsors and gain readership, likes and retweets. The reality is normally always quite different. One recent columnist actually put the UK as a definite buy, before leading on to promote a booklet one of the managers had produced.
It is hard to understand any of that logic, which would be no more than a bet on which potential Brexit we might receive. You are better off at the bookies with that.
What we do know, is that a soft Brexit, or no Brexit at all, are the two key outcomes that stock markets would most respond to.
73% of FTSE350 companies (that’s the smaller and more mid-sized companies) have just predicted their company would be damaged as a result of Brexit, with just 2% believing the UK economy would improve this year. What is most worrying about that statistic, is that results and evidence must be fermenting in front of them, as last year 58% said Brexit would have no impact on them at all.
80% said Brexit has a negative effect on their investment plans.
As a consequence, with three years of paralysis, such companies are not growing like they should. How on earth could they create a strategy?
Subsequently, investors have looked to cash to protect their investments. January 2019 had eleven times more money poured into cash ISAs than the year before.
All of this is a dangerous strategy. If there is no Brexit or a mild one, UK domestic stocks, i.e. the smaller and Mid-Caps above, would rally significantly. Being in cash will not offer any protection as you bustle into a now fully valued market. You will not be able to time that market. You will be too late.
It is better to be invested wisely and diversified, and let’s face it, there is a big world outside of the UK to make money.
In the event of any of the ‘bad Brexit’ options, UK index linked bonds, equities or bonds denominated in overseas currency will offer the better options to improve your overall portfolio experience. As you have seen since the referendum, the FTSE100 has done well off the back of this, due to profits being repatriated into the weak UK sterling giving a significant uplift.
In reality, because so much of your holdings are denominated in foreign currencies, a bad Brexit would see an uplift in your portfolios.
However, this balancing act carries the next risk of being so protective over a bad Brexit, that if it didn’t happen, your manager might not be nimble enough to move into the unloved arena quickly enough. Therefore, managers should be exposed globally to the themes that are solid no matter what, rather than second guessing the despicable shenanigans of inept politicians.
Arriving back into the UK for my seventieth flight since the referendum where I have not had any ID checked, I can’t help but think the ‘taking back control of borders’ might just be no more than a very expensive marketing slogan.
About the author
Peter McGahan is Chief Executive of Independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority.
If you would like your portfolio reviewed, please call 01872 222422 or visit on wwfp.net.
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