It should be no surprise that as a result of Brexit, the current political climate, and the constant news attention these generate, we are having more and more discussions with our clients relating to the impact these could have on investment portfolios.
The short answer often given to client concerns about investments is that investors should be investing for the long term, and that markets and the economy, have a tendency to rise over time. Whilst this is true, and, for investors, this should mean a return on investment for those who can weather the ups and downs along the way, it is important to acknowledge that this “short answer” won’t always allay concerns, especially when we consider the uncertainty facing the UK at the current time, feels more unsettling.
Volatile markets, as we saw last week and in February this year will have heightened uncertainty, but history has demonstrated that it would be foolish to try to second guess politicians and investment market reactions (consider the fact that the stock market did not drop by 20% after the vote to leave in 2016, as many had predicted it would). This being said, it would be hard to miss the fact that at the current time, whatever the outcome of Brexit, the UK has some significant challenges ahead, whether economic or political.
This climate is something that we have been considering carefully for clients. Being truly independent, the partners and advisers within Partners Wealth Management are not tied to a particular “house view”. Unlike many advisers you may meet, we have the freedom to consider the wide range of views from the most respected investment houses in the industry. As such, we have taken the time to understand the multitude of viewpoints of the investment houses within our current Manager Matrix (as ratified independently by Asset Risk Consultants) to identify common themes and positions from this research.
It would be true to say that the majority of investment managers we prefer at this time are global investors, and whilst there is a common theme of some concern over Brexit, the management teams are seeking to limit portfolio exposure to unpredictable “binary” events (such as “chequers: no deal”; “no deal: no Brexit”).
With this in mind, when we look at a cross section of investment managers considered, the global stock market content (including UK) currently being employed within client portfolios remains at a similar level to historical levels within a well-balanced portfolio. However, when we look more deeply at how this is constructed geographically, many investment managers currently have a lower level of exposure to UK equities and, in particular, UK domestically focused stocks, than we have seen in a very long time. This means that many are currently favouring international equities and UK multinationals to provide their stock market-based returns. This position is perhaps unsurprising, as until there is a “deal”, the majority of the managers considered expect Sterling and UK equities to remain under pressure in the short term. If you turn the clock back to the 2016 vote to leave, this type of global exposure helped buoy investments as the value of Sterling fell.
Some investment managers have gone slightly further, and have also reduced or removed their Utilities and Infrastructure holdings. In addition, some teams have started to increase exposure to Gold, and, in some cases, US treasury stocks, as a safer haven in the event of more turbulent investment markets. These would also benefit from a further drop in Sterling.
Whatever happens, history has taught us that asset prices rarely behave as commentators predict. In my opinion, economics, investment viewpoints and politics are only one part of the equation. Whilst I do subscribe to the “short answer” train of thought, which is that those who gain most are those who hold their nerve with their longer-term objectives being at the forefront of their minds, you cannot ignore your own personal goals for the future. In discussions with clients, it is abundantly clear that key events, such as the road to retirement, can have a significant bearing on anybody’s feelings and concerns, relating to the impact of short term investment volatility.
Looking at the “short answer”, it could be argued that potential volatility, whilst unsettling, could present an opportunity. Another clearly identifiable theme is that a large majority of investment managers are continuing to hold cash from some of the reduced positions they have taken (as mentioned above), to enable them to make the most of opportunities, such as that presented by the downturn last week, as they arise. However, for those clients who are more “bearish” about the short-term market, or have specific events that will occur in the shorter term that require planning toward, we are starting create a “buffer” so they have peace of mind that they can achieve what they need to, yet have the ability to make the most of prevailing opportunities as they present themselves in investment markets.
It is clear from the discussions we are having with clients that there is a lot of concern about the impact current events could have on their investment portfolios (and therefore their ability to achieve their goals for the future). What is also evident is the value that our client focused, independent thinking can add in addressing these concerns. If you would like to discuss any of the above, please contact your usual Partners Wealth Management adviser, or call us on 020 7444 4030 for an initial conversation.
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