By Philip Smeaton, Chief Investment Officer
How we feel about Brexit very much depends on one’s perspective. It might depend on how you voted, where you come from, what job you do, or even how comfortable you are with change. Regardless on the lens through which you view this fascinating chapter in our country’s history, one thing remains true - since the day of the referendum itself, there is very little most of us can do to control the outcome.
So, when people ask me on my view of Brexit, I make no apology if I appear nonchalant. It’s not because I don’t care, it’s just that, as an investor (and as an employee and UK citizen as well), my time is better spent focussing on the things I can control, rather than the things I can’t. The only material impact Brexit has had so far on portfolios is to push up the value of your equity investments as Sterling depreciated.
Here is how we continue to navigate Brexit uncertainty on behalf of our clients:
Global diversification is key
It would have been negligent to plough large sums of client money into domestically focused UK companies. We’re a global investor, and we’re resolute when it comes to diversifying our portfolios across different geographies and sectors. Indeed, as a fraction of our global investments, the UK makes up only a third of our equity exposure, and even then companies like BP, Unilever, and Diageo earn most of their profits outside of the UK. Less than 10% of client’s capital is exposed to domestically focused UK companies or real estate. It shouldn’t matter what the political issue of the day is, or where in the world it is occurring, as investors it’s our job to ensure our clients are not over-exposed to one ideal.
Where there’s uncertainty, there’s also opportunity
What tends to happen when the outlook for a region or sector is opaque, is that good companies get swept along with negative sentiment. Lloyds bank, for example has repaired its balance sheet, cleaned up its business, and is now making significant investments to capitalise on opportunities within FinTech. There are excellent UK companies with durable competitive advantages and robust balance sheets, but their share price is suffering just because they are British. It’s only by carrying out detailed research and analysis of these companies that we can uncover opportunities. By analysing each business, and modelling different scenarios, we can satisfy ourselves that the company remains a good investment, whatever the ultimate outcome of Brexit.
Businesses are adept at change
Arguably it’s the length of time Brexit is taking that threatens business, not Brexit itself. In general, companies are good at adapting to change. If they’re not, they won’t survive, regardless of what the risk happens to be. Brexit is ultimately a change in the rules, and once they know what the new rules are, they will adapt. The point is that UK business (and those we trade with) need clarity on those rules sooner rather than later.
It’s not all doom and gloom for the UK
Unemployment has fallen to 4%, meaning that most people in the UK who want a job have one. At the same time, wage growth is accelerating and is the strongest it has been for 10 years. All of this is good news for the UK economy. More money in pockets means there’s potential for improved consumer spending. And when interest rates do rise, people will be in a better position to cope with it.
Chart 4: UK regular wage growth
Source: UK Office of National Statistics
My advice to clients is not to worry about how Brexit may affect their investment portfolio. Your investment is well protected from the risks it presents and we continue to focus on global diversification and investing in quality businesses. And, if it’s keeping you awake at night for other reasons, remember this:
“Why worry about the things you can’t control, when you can keep yourself busy controlling the things that depend on you.” - John C Maxwell