Brexit: What the fund managers are saying, June 2016
Despite polls suggesting the vote could well have gone either way, Brexit still took the UK—and the world!—somewhat by surprise on Friday. On the first day of trading after the result was announced, the UK stock market finished down 3.4%1. The pound was at £1.37 to the USD just before midnight2. The day before the vote, it was at £1.483.
We've put together some commentary on the impact of Brexit on your investments as well as a general guide on how to invest in volatile markets. Below, we've also taken a look at what some of our most held fund groups are saying.
TwentyFour Asset Management; Mark Holman, CEO
“The consequences of a Brexit on the UK economy at this stage are going to be hard to predict, but we believe that overall it will harm growth and result in a policy response from the Bank of England, with a rate cut to 0.25% at the next meeting on 14 July.
“Yield will therefore remain the market’s most scarce commodity over the medium term. In the near term, risk assets may well continue to be volatile with some drawdowns, but once the turmoil is over we think this will be relatively short lived.
“For investors looking for yield in their portfolios generally, we think the Brexit vote provides an attractive entry point to capture it.”
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BlackRock; strategists and portfolio teams
“We expect European leaders to focus on fending off domestic populist movements emboldened by the British exit and on preventing the entire EU edifice from falling apart. This points to a tough negotiating stance toward the UK and less focus on much-needed structural reforms.
“We see a weaker euro over time and pressure on European shares, credit and peripheral bonds such as Italian government debt. We expect limited pressure on government budgets, however, as high-quality government bonds are in demand in a low-rate world.
“The Bank of England’s first priority will be to provide ample liquidity to avoid any funding stresses, in our view. The magnitude and volatility of the British pound’s fall will likely dictate further responses. We expect the central bank to cut its 0.5% policy interest rate to zero soon. We expect credit rating agencies to quickly adopt negative outlooks for UK government bonds, with downgrades to follow.
“We see the vote leading to declines in global shares and other risk assets. Yet indiscriminate selling could translate into opportunities. US and Asia markets are only marginally affected by the UK’s exit from the EU, and are supported by a mix of easy monetary policy and economic growth. In the UK, we expect the large-cap FTSE 100 Index to outperform the more domestically focused FTSE 250 Index. A UK currency drop benefits large companies with overseas earnings, whereas domestic sectors such as home builders, retail and financials look vulnerable.
“Commercial property values could fall around 10% over the next year, led by declines in oversupplied central London, we believe. We expect sharply reduced tenant demand and a shift toward shorter lease terms. Overseas investors are set to demand a larger risk premium, or more compensation, for holding UK assets. We see little risk of debt-forced sell-offs, however, as developer financing is mostly long term.”
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Woodford Investment Managememt; Neil Woodford, head of investment
“The independent report that we commissioned earlier in the year concluded that Britain’s long-term economic future would be largely unaffected by a decision to leave the European Union. We stand by these conclusions.
“That is not to say there won’t be challenges in the near-term. There will. We now face a period of uncertainty as the exact terms of Britain’s exit from Europe are negotiated. Financial markets loathe uncertainty. [Plus] the global economic backdrop will continue to be challenging, regardless of our membership of the EU.
“However, the portfolio strategy will not change. It was designed for a challenging world, characterised by low growth, deflation, debt problems, weak productivity and troubling demographics.
“Although market conditions such as these can be unsettling, we would strongly urge investors to look through this period of uncertainty and focus on the long-term opportunity which, in our view, continues to remain attractive.”
1Google Finance, FTSE All Share, 24/06/2016
2Google Finance, GBP to USD, 24/06/2016, 2300hrs
3Google Finance, GBP to USD, 23/06/2016, 2300hrs