Investors are feeling sanguine about the UK's imminent exit from the EU, according to their financial advisers.
While there has been much talk in recent months about how investors can prepare for Brexit and whether they should consider coming out of the market altogether, IFAs say their clients do not seem panicked.
In times of uncertainty, it is no wonder that many people turn to their adviser for reassurance and there are plenty of reasons to be concerned about Brexit - rising prices of goods, potential problems when travelling to Europe, and the fate of the 1.3 million UK-born people living in the 27 EU countries. We spoke to IFAs to find out if the stock market and investment porfolios were also on their clients' lists of Brexit-related worries.
Martin Bamford, financial planner at Informed Choice, says Brexit is a regular topic of conversation with his clients: "Just like many British people, my clients tend to hold a variety of opinions. Some are terrified of the economic consequences and others believe it will be positive for their investments in the long term."
Anna Sofat, financial planner at Addidi Wealth adds: “I talk Brexit with clients, with some more than others, but I have never received any call out of the blue. Most of the Brexit conversations come up in our standard reviews meetings.”
While Brexit was a hot topic in the first six months after 2016's referendum, Sofat says it has been less frequently discussed since. However, as uncertainty has heightened she admits tensions has picked up again in recent months, now that the departure date is getting closer and a no-deal exit looks increasingly likely.
Indeed, a survey of private investors by Research in Finance found that 33% are planning to make changes to their portfolio in the event of a hard or no-deal Brexit, and 42% have already taken action such as increasing the proportion of their assets in global equities.
Should I Change my Asset Allocation?
One of the most common questions that people are asking advisers is whether they should change their portfolio allocation. At the moment, many investors are considering pulling out of the UK stock market as volatility creeps up and whether they should be stashing more money into cash.
Ivor Harper, director at Park Financial, says he typically tells clients the same thing whenever there is the possibility of a short-term shock to the pmarket: sit tight and stick to the plan.
“My mantra is: diversify, buy and hold,” he says. “The majority of my clients are in long-term plans and trying to react to anything short-term is just folly - especially since no one actually knows how an event will impact on their portfolios anyway.”
When his clients are worried, Harper likes to quote former Motley Fool columnist Morgan Housel: “Markets go through at least one big pullback every year and one massive one every decade; get used to it. It's just what they do”.
Indeed in 2016, many investors fled to cash fearing a leave vote and a Trump accession but despite the fact both of these events came to pass, markets thrived.
Peter Chadborn, director at Plan Money, says clients’ concerns about portfolio allocations are usually short-lived. He tries to remind investors of their long-term approach and that their strategy is to invest in globally-diversified, risk-controlled, passive strategies. “Clients feel reassured when they hear that their UK exposure is limited,” he says.
Indeed, the UK has been particularly out of favour with many investors since the referendum in 2016; UK equity funds have seen outflows of around £14 billion since the vote to leave the EU.
But investors who have fled the FTSE have missed out on stellar returns. A weaker pound and the fact that around three-quarters of FTSE 100 earnings come from overseas have provided bumper gains in recent years.
As well as that, points out Chadborn, it means investors already have exposure to international markets without having to invest outside the UK.
Bamford reiterates to his clients that Brexit is just one of many factors that could influence investment markets and is not an especially big factor in a global context. Other issues, including a global economic slowdown and the escalating trade war between the US and China are more likely to influence future returns, he says, along with monetary policy and the eventual reversing of quantitative easing. "Brexit feels important because we are bombarded with it every day, but from an investment perspective it’s a bit of a side show," he says.
Should I Hedge my Investments?
Currency risk has become a popular topic among investors trying to speculate on what Brexit will mean for the pound. It is estimated that sterling could plunge by 10% against other currencies in the event that the UK crashes out of the EU without a deal, while any positive developmentss could boost the pound by the same amount.
While some advisers are employing hedging for particularly sensitive assets, others say it is too difficult to predict what will happen to the pound.
Sofat says the key thing is to keep an eye on the long-term - even if a portfolio suffers a short-term setback, over a 10-year period it is likely to recover. “Sometimes you can come in and out of things a bit too often and that is not going to give you a long-term benefit,” she adds.
Chadborn uses passive fund portfolio to spread his risk and avoid the temptation of trying to time markets. He likes Vanguard Life Strategy and Dimensional World Allocation, which have around 20% and 7% UK exposure respectively. “We don’t make tactical bets or market-timing decisions, so clients are relatively relaxed and prepared to weather any volatility that might come,” he says.
What if I Need My Money?
Investors who need to access their capital soon may be among the minority who do need to consider changing tack. Advisers say these investors may need to remove some of the risk from their portfolios by increasing the proportion they hold in cash, for example. Certainly, 14% of those surveyed by Research in Finance who have made changes to their portfolio have already increased the amount of cash they hold, while a further 5% have invested in gold or silver.
But Chadborn says if investors are in the position where they need to access their money close to or shortly after Brexit, then the wheels should have been put into motion well in advance. "This process would likely involve ring-fencing the required capital in cash or fixed interest within the portfolio and separating it out from long-term investment positions," he explains.
Harper points out that any good financial plan should already involve setting aside an amount of money that might be needed for short-term emergencies. "I usually ask my clients to imagine what situations could arise that would require them to urgently need to access money over and above six months' salary. Actually, there aren't that many - most 'big hit' events are insured against," he says.
However often short-term concerns are not related to investments, says Sofat: “I was talking to a client today, and they are planning on going on holiday to Ireland – they are not sure whether they will manage to come back without any issue.”
