Dan Kemp: The Brexit debate is starting to bear a strong resemblance to that old English carol, The Twelve Days of Christmas. While both started relatively simply, in the case of Brexit, a yes / no referendum on leaving the EU, at this late stage it is becoming increasingly repetitive and chaotic, with not just Lords leaping but MPs too as they noisily declare themselves for one faction or another.
As investors is it always tempting to seek meaning in politics, especially when that politics is so related to the economic outlook for the UK.
However, it is always worth remembering that the fortunes of large listed companies are distinct from those of a single economy and so it is dangerous to draw a causal link between the two and even more dangerous to make an investment decision based on that link. This is especially true with Brexit as the constant shifting of political positions encourage rapid changes of opinion that can easily result in an investor being whipsawed by the market.
While positive or negative headlines can undoubtedly move market prices, these movements primarily reflect a shift in the sentiment of investors rather than a change in the fundamental value of the underlying companies. We therefore need to look beyond the noise at the fundamental value of the assets in which we can invest.
This can only be done if we thoughtfully consider the range of possible outcomes and consider the probability and impact of each of those options. Only then, can we assess which assets are likely to provide the best combination of risk and return. For example, as other investors have become increasingly negative about UK equities over 2018, we have become more enthusiastic, believing these companies offer better value than most other equity markets.
Another way of searching for value is at the industry level. Here too we see good opportunities within some European industries, specifically telecoms and financials, both of which are unloved by other investors.
This search for value among the noise is like looking for the five gold rings among the constant movement of hens, geese, swans and people. The environment can be confusing but the search for value is worthwhile.
