Investing, post-brexit

An early star of the current UK general election campaign was ‘Brenda from Bristol’ whose reaction to the news (“You’re joking. Not another one!”) neatly caught the weary public mood after three solid years of elections and referendums. Elections can produce big surprises and, with all-important Brexit talks looming too, it would be easy to predict a tricky time ahead for UK investors. But, as many a seasoned investor might argue, political upheavals can just as easily prove a fruitful source of opportunities.

Brexit bravado

That much has certainly been true over the past year, which has seen stock markets globally jump to record new highs( – despite repeated political shocks. In the year to the end

1) of April, the MSCI World Index has gained more than 15 per cent( 2). Every country has its own story to tell: from the great ‘Trump Bump’ in the US, to Europe’s resurging markets this spring. But, in Britain, the dog that didn’t bark was the predicted market ‘shock’ from last June’s Brexit vote.

True, the immediate collapse of the pound – still down by around 15 per cent on its pre-referendum value( – has meant

3) headaches for UK companies reliant on imports. But it also put a rocket under London’s blue-chip FTSE 100 Index, because so many of the companies listed are international outfits, earning their revenues in dollars. For them, the sharp fall in the pound meant an instant profit boost.

A better gauge of the UK’S actual economic health is the domestically-focused FTSE 250 Index. But, despite initial wobbles, here again the story has been positive. The IMF reckons Britain will grow by 2 per cent this year, making it the second fastest-growing economy, after the US, in the G7( 4).

Living with uncertainty

The big question, now that Prime Minister Theresa May has actually pushed the Article 50 button, is what happens next. Some sceptics question the market’s recent optimism – arguing that once negotiations begin in earnest, the difficulties of achieving May’s stated aim of striking “a deep and special partnership” with the EU will be laid bare.

Reports of tricky dinners with EU leaders suggest that negotiators have some way to go to agree a political deal amenable to both parties. But as Moneyfarm’s chief investment officer, Richard Flax, points out, achieving “the best” Brexit outcome, from an economic perspective, may be a separate question altogether.

The only near-certainty is that we can expect at least two years of uncertainty while a deal guaranteeing access to the single market is hammered out – and that the ups and downs of political negotiations are bound to be reflected in market movements. “We know, for instance, that sterling has fallen since the Brexit vote,” says Flax. “But where it goes next is unclear. Brexit has created its own rhythm, and part of that is a more complicated economic landscape.”

The gung-ho gang

Perhaps the worse-case scenario for UK companies and City firms is that they are left in limbo if no agreement is reached by the end of the two-year deadline, with potentially worrying consequences for growth.

Where you stand on this argument probably depends on your view, more generally, of whether Brexit is a good or bad thing. There are certainly plenty of gung-ho Brexiters who reckon that the downsides of leaving the EU will be swiftly cancelled out by the UK’S new freedom to “strike trade deals with old friends and new partners around the world”, as the PM puts it. But the most salient point right now is that nobody actually has a clue how things will eventually pan out.

Theoretically, that’s not great news for shares: it’s become a truism that what markets hate most is ‘uncertainty’. But if we’ve learned anything over the past year, it is that it doesn’t pay to get too hung up about political outcomes. Recent global upheavals – from Brexit, through the arrival of Donald Trump at the White House, to Emmanuel Macron’s French presidential election victory this – have been played out against a backdrop of record low equity volatility in 2017 Elections, referendums and the rest may be big stories

( 5) politically but, long-term, a properly balanced portfolio – featuring a range of diversified asset classes, spread across different geographies – is key to managing risk.

Looking after number one

Of course, in investment there are always risks as well as opportunities. But the important point that it’s a big old world out there. The next time you find yourself fretting about the progress of UK stocks, bear in mind that they account for less than 10 per cent of the value of all the world’s equity markets( and any

6) well-diversified portfolio will reflect that.

Our job at Moneyfarm is to think through the risks on your behalf and find the right mix of investments to generate consistent returns, whatever the political weather, while working to reduce volatility. It goes without saying that constant monitoring is needed to get this balance of investments right, and to hunt down the best opportunities at any given point in the investment cycle. And it’s equally important to ensure that your portfolio matches the level of risk you’re comfortable with taking personally.

Whatever the outcome of Brexit negotiations, some things remain unchanged: notably the vital importance of focusing on your own future personal and financial goals. Visit us at Moneyfarm.com and let’s start talking.

Your capital is at risk. Investments can go down as well as up and you may get back less than you originally invested. Moneyfarm is authorised and regulated by the Financial Conduct Authority no. 629539. 1. https://www.theguardian.com/business/2017/apr/25/stock-markets-us-tech-donald-trump-tax-reform-emmanuel-macron-french-election

2. www.msci.com/documents/10199/178e6643-6ae6-47b9-82be-e1fc565ededb 3. money.cnn.com/2017/04/18/investing/uk-early-election-markets/index.html 4. www.economist.com/news/finance-and-economics/21721205-recent-years-fundsforecasts-have-proved-over-optimistic-imf-nudges-up

5. Wall Street’s Vix Index, which measures short-term turbulence, is at its lowest since 1993. https://www.ft.com/content/456629ce-343a-11e7-bce4-9023f8c0fd2e

6. Statistic cited by Tom Stevenson of Fidelity in The Daily Telegraph www.telegraph.co.uk/business/2017/04/23/investors-should-view-election-bigunimportant/?wt.mc_id=e_dm417727&wt.tsrc=email&etype=edi_cit_new_aem_ Daily&utm_source=email&utm_medium=edi_cit_new_aem_daily_2017_04_24&utm_ campaign=dm417727