Investment Newsletter - March 2016

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Investment Newsletter March 2016

Politics, Polls & Portfolios Mike Deverell Investment Manager

The recent announcement of the European referendum has brought political risk sharply into focus for many investors. Naturally, many clients are interested in how we are positioning portfolios ahead of the referendum. The short answer is we are being cautious and holding less equities than usual, and in particular we typically have a smaller amount than normal in the FTSE 100. There are a number of reasons why we think this position is the right place to be, with the referendum being just one of them. In the run up to the referendum we think the pound could be weak, and indeed it has already fallen. This is actually a positive for overseas investments and for those UK companies who make their profits overseas. However, it is a negative for UK companies who import goods. In aggregate, a weak sterling is probably a minor positive for most portfolios provided it does not turn into a disorderly sell off.

We also feel we could see volatility in the UK market as we get closer to the date, in particular in the shares of those companies who make more of their profits from the EU. In general, an “out” vote would probably be negative for portfolios at least in the short term, as this would lead to greater uncertainty and therefore potentially prolonged volatility. Conversely, a “remain” vote could see stockmarkets and the currency bounce strongly post referendum. However, it is quite difficult for us to position portfolios for the referendum. Firstly, the outcome is uncertain and therefore it would not be sensible to position portfolios too heavily skewed towards one outcome or the other. Most polls are showing a small lead for “remain” but the margin is slim.

Equilibrium Asset Management LLP (a limited liability partnership) is authorised and regulated by the Financial Conduct Authority. Equilibrium Asset Management is entered on the Financial Services Register under reference 452261. The FCA regulates advice which we provide on investment and insurance business; however it does not regulate advice which we provide purely in respect of taxation matters. Copyright Equilibrium Asset Management LLP. Not to be reproduced without permission.


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