…or similar, has to win the award for the most used saying after reading over 20 press releases from investment managers and various articles from financial press and media over the weekend. We have had a number of clients contact us over the last couple of days wondering how the unexpected result of a leave majority has:
1. had an impact on their savings, retirement plans and investments; and
2. what advice are we providing to our clients in light of the result.
The first thing to stress is that the actual terms and conditions of the UK leaving the EU will take some years to play out. Therefore, in the interim, we can share with you some of the collective wisdom from many of our investment managers and how we are advising clients in respect of their long term financial plans.
The Market View
Apart from an early kneejerk reaction the major stock market indices seem to have reacted better than would have been expected, the consensus view we are getting from most asset managers is as follows:
Due to the current political environment and the expectation for the UK to have to renegotiate trade agreements there is a large amount of uncertainty out there. This will have an overall negative impact on UK GDP growth. A number of investment managers have advised us that they had already positioned their portfolios to reflect a more defensive approach, by reducing their exposure to Sterling, the banking sector and UK small companies and mid-caps, as these areas are most exposed to the impact of lower growth prospects for the UK.
Many of our managers had also increased their cash positions, so they could be able to take advantage of any opportunities regards cheaper valuations.
They have also looked to safe haven assets at this time, such as the USD, Swiss Franc, Yen and Gold.
Due to the potential prospect of an increase to inflation caused by higher cost of imports a number of managers have made higher allocations to index linked gilts (also known as “linkers” or TIPS), which have risen on the back of the result.
Looking forward many managers have also been very cautious for the prospects of the EU member states’ economies and now expect pressure for a number of other European nations to run similar referenda. Therefore they will remain underweight in Euro and European equities.
Finally, it was interesting to note how inward looking many commentaries have been as it is also worth noting that we have a forthcoming US election and perhaps this may have the effect of diverting investor attention away from the UK and Europe to the much more significant US markets.
We will keep a close eye on how this plays out and no doubt we are going to be busy with reading many more commentaries as the events from the 23rd June unfold.
How are we advising our clients?
As independent financial advisers we are focussed on our clients’ investment goals and objectives over the medium to long term and, unless there is a short need for liquidity, we will not be advising any immediate change of their investment strategy.
The key message we are giving our clients is to stick to their long term goals in respect of savings, investments and retirement plans.
We will undertake regular risk and suitability reviews with all of our clients as part of our advisory process and will ensure that our clients are invested in the most appropriate solutions that match their particular requirements. We are also very wary of recommending non transparent or illiquid investments that may offer tempting headline returns, but in times of distress would be hard to sell or even recover the underlying capital.
One key feature of all of our recommendations is the importance of having a very well diversified portfolio, which does not leave you at the mercy of any one market or asset class.
For regular savers and pension clients this short term volatility may actually create an opportunity, as the values have decreased of late and therefore would benefit from the effect of pound cost averaging and buying in at lower values.
Understandably, a number of clients have been waiting on the side-lines and, as their long term objectives have not changed, we are now advising them to consider a “phased” investment approach over the course of the next few months, now we have seen an initial decline in asset values. Over the medium to long term we do not believe interest rates will increase and therefore cash is an asset class that will slowly but surely lose value in real terms, when taking into account the effect of inflation.
In short we believe that a long term approach to investing produces the best outcomes and that it is more about the time in the market than trying to time the market.
We will keep a close eye on this fast moving environment and won’t be diverted from giving our clients the best chance of success. We do that by making investing easier, less costly and providing the most suitable advice tailored to our client’s individual needs.