As financial institutions all over the UK contemplate the implications of Brexit, a top Yorkshire IFA is urging investors to keep their heads and make sound investments based on solid data in the run up to the referendum on 23rd June.
Stephen Baxter, Joint Managing Director at Huddersfield-based Robertson Baxter, believes that investors need to keep their eye on the long term prize and remain focussed on the fundamentals rather than being distracted by the noise that the referendum will create.
“People need to keep investing in for the long-term based on macro and micro data,” he said. “Portfolios should be managed to mitigate potential downsides and minimise the likelihood of increased volatility that the uncertainty of the referendum created
“It is better to staying invested as opposed to moving into cash and trying to time investments which is incredibly difficult,” he added. “Analysis by JP Morgan shows that between 1994 and 2014 annualised returns on the S&P 500 were 9.85%. If just the best 10 days in the same period were missed the return falls to 6.1%. This shows the benefit of long term investment.”
On 23 June 2016, Britain will be given the opportunity to vote on whether to stay in the EU on the terms negotiated by PM David Cameron, or leave and renegotiate trading terms with the EU and other financial markets, including America and China.
The last few weeks particularly have seen the UK enter a period of uncertainty and speculation not only over what the outcome of the vote will be but, also if the vote is to leave, what terms can be negotiated and how long those negotiations will take.
Early April saw movement in the Euro/Sterling exchange rate which hit a 12 month low. The FTSE100 was down 10% in twelve months – although it has recovered from its lowest point in mid-February.
The uncertainty is now palpable and is affecting the economy at a number of different levels, not least companies who are putting expansion plans on hold and stalling their investments in certain markets.
“In the light of this, fund managers will consider reducing their exposure to equities, particularly those companies who are heavily reliant on exports,” said Mr Baxter. “They may also decide to hedge the currency risk to eliminate that effect on the overall returns of the portfolio, thus reducing volatility.
“A vote to leave could well result in higher inflation – sterling would likely weaken leading to higher import costs,” he added. “A consequent reduction in economic activity would place pressure on government borrowing due to lower tax receipts, although this could be offset to a certain extent by the elimination of the UK contribution to the EU.
“As the date of the referendum approaches and the expected outcome becomes clearer, there may be moves to cash and other shorter term holdings with a view to providing liquidity to take advantage of buying opportunities once the result is known.
“However, it is important to remember that fund managers are experienced investment specialists who have their finger on the pulse and will make these decisions as they see fit.”
To arrange a meeting with a Robertson Baxter IFA call 01484 608095