John Husselbee

Thoughts on a no deal Brexit

John Husselbee


As we get closer to the scheduled exit date of 29 March and the political wrangling continues, many of our investors are understandably asking what we would do in the event of a no deal Brexit.

While we are certainly considering that possibility alongside several others, it is important to state at outset that we simply do not know what would happen to the economy and markets if the government is unable to put together some kind of deal over the next month – and however much they might pontificate, neither does anyone else.

As always, we have been constantly talking to our fund managers to gauge their views and as would be expected from the type of stock pickers we tend to favour, most see the subject as an irrelevance – or at least not something on which they can get any kind of information edge. One of our core UK equity managers goes as far as to say that every ten minutes spent discussing Brexit is ten minutes wasted.

For our part, we continue to stress the line we have held throughout: that the most prudent approach to managing portfolios in periods of heightened volatility is a process and philosophy that puts risk first, embraces diversification, avoids the temptation to market time and ultimately remains focused on the long term. This is our approach in managing target risk portfolios and that will not change as a result of a no deal, or any other kind of Brexit.

Without wanting to downplay the situation, market historians tell that us politics rarely has a long-term effect on investment performance. We would also stress the fact our portfolios are globally diversified and not dependent on the success (or otherwise) of the UK economy. We are more tied into the global economy and in that context, the UK makes up just over 3% (and around 6.5% of the global stock market), so Brexit – however it plays out – is unlikely to be a significant driver.

While it would be complacent to ignore this situation outright, we continue to believe our portfolios are driven by the path of global economic growth and global inflation.

To date, the ebb and flow of our future relationship with Europe has mainly been seen through the strength or weakness in the pound as well as gilt yields. Weakness in the pound has clearly supported UK companies, typically those listed in FTSE 100 with significant overseas earnings. Of course, currency movements can work for or against us, and we are not attempting to predict these notoriously unpredictable markets.

As a result of this and other factors, the number of UK companies with a dividend in excess of 5% has reached historic highs. To allocators of capital, this is attractive value opportunity but in global terms, there are many others, particularly post the declines of the fourth quarter.

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Friday, February 22, 2019, 1:25 PM