INVESTMENT DIRECTOR, ERIC WOODWARD’S THOUGHTS POST-BREXIT
It is now one week since financial markets had the shock of dealing with an exit vote and we feel it is important to update you with our reflections on last week’s moves in the markets.
The global equity markets moved sharply lower, with the UK and European markets coming off more than others unsurprisingly. The moves in the bond markets were, however, more muted. But it was the foreign exchange markets that bore the brunt of the moves, with Sterling falling to its lowest level in 30 years against the Dollar.
We appreciate the media coverage may have led to concerns around your investment performance, but you will be pleased to know that our portfolios have held up well. At the close performance, but you will be pleased to know that our portfolios have held up well. At the close on Monday 27th June, the worst performance was down 1.5% and as of the close last night, all of the portfolios have risen substantially and are all now in positive territory since the result.
The main reason for the downside protection is due to the diversification in our portfolios. The fall in the Sterling gave an immediate uplift to all of our overseas exposure, particular those based in USD, offsetting the losses seen in the UK and European parts of the portfolios. It has also been well publicised that the FTSE 100 has recovered its losses and has now risen above its pre-Brexit level.
Some themes are becoming a lot clearer to us. It continues to be the exchange rate that is taking the strain short term which will be helpful to overseas earners. This probably means we will have to move away from our bias towards smaller and mid-sized UK companies which do not benefit as much. This is compounded by UK Growth forecasts, which are being revised downwards.
We have seen some guidance from the Bank of England yesterday and we may well see a reduction in interest rates within the next two months. Thank goodness the Bank of England is in charge of monetary policy and not the politicians! This is likely to impact UK banks and so we will review any holdings which have exposure to the financial sector in general and the
banks in particular.
We will also be reviewing the funds in the absolute return space where not all holdings have behaved as we would expect. We continue to think this outcome will lead to a period of uncertainty and volatility, but we also think this will provide us with some opportunities to reinvest at lower and more attractive levels.
We have been conducting meetings with managers where we think changes may be needed and will be making decisions shortly. We expect we won’t need to make major changes overall, as most of our holdings have behaved quite well over the last week. There is a degree of order coming back to markets and they are responding well to the policy statements from central banks.
So in summary, we will not require a major revision in our core holdings but there will be some adjustment to individual holdings reflecting the changes in the outlook to the economy.