The question on many investors minds is probably, “What effect will Brexit have on my investments?”
To put matters in some context, UK equities (shares) make up around 6% of the total value of global equity markets, and UK government debt, at $2 trillion, is the sixth largest in the world. While this is large enough to affect investors across the globe, it’s still dwarfed by US, Japanese and EU debt, meaning the impact of Brexit on global markets is likely to be minimal. Since July 2016, market behaviour has been more rational. It is possible that the economic impact of Brexit will centre on the UK, and to a lesser extent on the other countries in the EU.
Ever since the intention to hold the EU Referendum was announced, Sterling has fallen to its lowest level against the US dollar since 1985, while UK shares have lagged other leading markets. This is somewhat understandable given all the uncertainty that the vote created. However, since more than half of the revenues of FTSE 100 and FTSE 250 companies are generated overseas, the impact of domestic issues on these companies is likely to be limited.
What does this mean for your investments?
The portfolios built by JM Finn based on UNIQ Family Wealth’s criteria and any other funds we advise on, are spread across many markets and investments. This means they are not overly reliant on one region, such as the UK. Our emphasis on “asset allocation” means that there is good diversification across different types of assets which are also spread geographically.
The amount in each asset class will depend on your individual risk profile and tolerance to loss. To determine this we use the psychometric risk profile questionnaire, FinaMetrica.
The portfolios are also designed for the medium to long-term, although our investment committee meets quarterly to review performance, discuss any potential fund changes and appraise what is happening with economies in the UK and overseas. Rebalancing the portfolios at the end of May and November ensures portfolios stay aligned with risk profiles, capture any gains and make any changes.
We feel that Brexit itself is unlikely to significantly impact markets outside the EU. The world economy is far more dependent on how US-China trade relations play out and the rate at which global central banks increase interest rates.
Nevertheless, whilst there is uncertainty it is important to sit tight, ignore the noise, and every sensational headline. It is quite normal for markets to fluctuate during such times, but over the longer-term economies and business do adapt to changes.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.