The start of 2016 has been one of the most challenging periods in recent years for UK markets, with the FTSE 100 Index briefly entering bear market territory in the middle of January. Fuelled by a collapse in the oil price and escalating concerns over China’s slowdown, the upcoming Brexit referendum on 23rd June this year is giving us all something extra to ponder and debate.
Here at Ovation we have also had some lively debates on the topic; some may have changed position a number of times already, which, in the absence of facts re the “In or Out” arguments, will probably be the case right up to the June vote.
Whichever side you’re on, many typically share a common view: the EU’s constitution has many flaws as it currently stands.
But is a Brexit really likely? Given how change-resistant recent electoral outcomes have been,fear of uncertainty may prove to be too deep in the national psyche for a ‘Leave’ majority. That said, for as long as Brexit remains a possibility, it is to be expected to see some volatility in the UK market in the lead up to the vote. After all, the 2014 Scottish referendum and the UK general election last year showed us that even a prospect of political change can have an impact on markets.
What impact does all this have on my investments?
While as individuals we may sit on the fence, we need to consider how all this impacts on your investments.
Should the ‘Leave’ campaign be victorious, many of our investment contacts and fund managers believe that the most likely immediate scenario is that Sterling will fall and a period of market volatility for the UK in particular will be extended. There are, however, mixed views and little consensus as to whether either outcome is a good or bad thing over the longer term for the UK economy, but most agree that in many areas change provides an opportunity rather than a sell-sign. Regardless of whether it is an in or out result, it is likely that a change in the relationship with our European neighbours will ensue.
This is a time when we would expect to see the more active fund managers in portfolios demonstrating their merit and rewarding prudent investors by taking advantage of potential volatility in the coming weeks and months, so we have introduced a little more active management into portfolios where we think this adds advantage.
Our message then is not dissimilar to our views circulated during the short-lived “bear market” earlier this year: while we may make small tactical adjustments to portfolios, our strategy is to carry on very much as usual, in the knowledge that our multi-asset model with its broad geographic base has been tested over even more challenging times from a market perspective and remains valid both now and for the longer term.