Once more the polls have produced a result few of us could have predicted. Markets don’t like uncertainty and there is a heap of it about now, yet the reaction was initially muted. While the “News at Ten” chimes were still ringing to the exit poll headlines, sterling fell away nearly 2% but UK equity markets opened the day steady.
The key investment lessons of the EU referendum and the US presidential election seem to have been learned. Shape portfolios to countenance a shock beforehand and do not panic afterwards when it happens.
Going into the election we were repeatedly questioning whether there was too much complacency in the markets. On the one hand, the management teams we meet continually fill us with confidence – demand in many areas appears buoyant and companies are investing. On the other, we see the cloud of Brexit and the dangers of a poor exit deal.
In such a context, we take some comfort from the fact that the majority of our portfolios are invested in holdings which are not reliant upon what happens in the UK to grow their revenues and profits. Indeed, we have ensured that even for our UK-listed companies and third-party funds, the longer-term opportunities increasingly lie abroad.
We have been neutrally positioned on equities and have constructed well-diversified portfolios, across geographies and asset classes, to better withstand any political risk pertaining to a single country.
As a result, we feel no need to instigate immediate portfolio changes. We will continue to monitor and refine – reviewing elements of portfolios that are more heavily dependent on the domestic market, favouring higher-yielding, UK-listed stocks with a strong international bias that might benefit from a weak sterling and that are resilient.
We will continue to monitor markets closely. The forecast is uncertain but the sky is not falling in.
Published 9 June 2017
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