View more on these topics

How can investors Brexit-proof their portfolios?


Heads or tails? If polls are to be believed, the outcome of the Brexit referendum in June is anyone’s guess.

Apollo multi-asset manager Ryan Hughes says: “It’s either a yes or it’s a no, both of which have very different implications when it comes to portfolio positioning, which actually makes positioning for the vote very difficult.”

Money Marketing’s recent poll suggests 51 per cent of readers are in the leave camp, although bookmakers suggest an exit is more of an outside chance at 35 per cent.

Hughes explains someone betting on a vote to leave would likely take a defensive portfolio position, with limited exposure to sterling and possibly to UK equities.

“Obviously if you have that position and the vote is to remain, you’re likely to lose quite a bit of money.”

Hughes has invested in global equities fund Polar Cap Global Insurance in US dollars as part of what he calls a sterling weakness position, rather than an explicit Brexit position.

Post-referendum volatility is the one outcome investors should be prepared for, even if Britain votes to keep the status quo, he says.

“Inevitably we would see an instant sharp reaction, and then we’d be in for a period of an initial three to six months of heightened volatility.”

If the electorate does vote to leave, the Government has two years to renegotiate its relationship with Europe. A statement released by Liontrust said this process would be an “unprecedented, daunting and costly prospect”.

Banks, retail, financial services and insurance are some of the industries that would be most hit by an out vote, according to Columbia Threadneedle head of equities for Europe Leigh Harrison.

He says the equity market would be hit by a weak sterling and lower growth expectations. While a lower sterling may benefit 75 per cent of the UK’s earning base that comes from outside the country, Harrison says the longer-term unwind from the benefits of being in Europe would be a headwind to longer term growth.

For those taking a fundamental approach to their portfolios, the lead-up to Brexit is a much more stress-free affair.

Liontrust economic advantage team co-manager Anthony Cross says: “The bottom line is that we’re not staring at our portfolio trying to scratch our heads and think about what is going to happen. We think our companies can deal with it because of their barriers to competition.”

Liontrust seeks those barriers through a mix of strong intellectual property, good distribution networks and high contracted recurring income. Healthcare, pharmaceuticals, engineering, consumer goods, and software are some of the sectors Cross favours.

He turns to Unilever or Diageo for their global footprint, and support companies such as Compass Group for their recurring income.

When it comes to fixed income, Nathan Sweeney, who runs the Architas multi-asset active range, has found comfort in the US dollar through high yield.

He says: “A particular fund that we’re added to is the UBAM global high yield solutions and they use a lot of credit default swaps. Basically they’re using derivatives to gain exposure to high yield.”

Neuberger Berman high yield is another fund he is invested in.

Sweeney points out it is important to consider the impact of Brexit beyond the UK. “If the UK decides to leave, that would open up questions for a lot of peripheral European countries. So what happens to Greece, does Portugal decide to leave, what happens to Ireland, which is a big trading partner with the UK. That to my mind would put pressure on peripheral bonds in Europe. That would also put pressure on peripheral European equity markets. You could see the Greek stockmarket fall, the Portugese stockmarket fall.”

Sweeney says Architas is seeking managers taking a defensive position and only investing in core Europe.

A recent poll of advisers by GAM examined Brexit in the context of wider global instability and geopolitical risk. Politics, including Brexit risk, was the biggest risk factor for 2016 for 34 per cent of those surveyed, followed by global economic recession at 22 per cent, the euro crisis at 16 per cent and Chinese debt implosion at 14 per cent. A liquidity crash and the risk of the Federal Reserve lifting rates too quickly were also seen as risks.

Investment Quorum chief investment officer Peter Lowman says clients are not unduly concerned. He says: “They tend to ask the question, should I be voting yes or no, and we’re non committal on that.

“With Brexit if you get a no vote, like we’ve already seen, it’s had a big hit on currency and that will probably continue and we could see the dollar-sterling rates down but if you get a yes vote, you get a subsequent recovery in the pound, so trying to predict whether it will be a yay or nay over the next 12-week period is really a bit of a mug’s game.”

Whatever the case, the mantra is expect the unexpected. As Hughes bluntly points out, there is a lot of waiting time ahead. “There’s a long time between now and June, there’s a lot of politics to be seen, a lot of rubbish to be written and a lot of falsehoods and claims to be made.”



Apfa: FOS must play its part in reforming adviser liability

One of the issues that crops up most often in conversations with advisers is their fear about future claims. Adviser liability is also the factor we mention most frequently when asked by the likes of the FCA and the Treasury how to broaden access to advice or what steps can be taken to get advisers […]


Citizens Advice chief: Altmann provider criticism unhelpful

Citizens Advice chief executive Gillian Guy says Ros Altmann’s comments over how providers are failing to signpost to Pension Wise were not helpful. Pension Wise has suffered from low take-up since it launched in April 2015, prompting the pensions minister to blame providers for failing to direct customers to it. But Guy – whose organisation […]

2016 Global Survey of Individual Investors: How is investor behaviour rewriting the job description for financial professionals?

Trapped between expectations for near double-digit returns and strong apprehensions about investing in persistently volatile markets, investors worldwide are of the opinion that professional financial advice is worth the fee. But even though they believe individuals who work with a financial professional are more likely to achieve their goals, investors have a clear vision of […]


News and expert analysis straight to your inbox

Sign up


There is one comment at the moment, we would love to hear your opinion too.

  1. Invest globally and be prepared to short sterling.

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm