With the Brexit debate ongoing, many people naturally have questions about how ready we are and how our portfolios are positioned. This page aims to bring together any Brexit-relevant information, and provide you with updates as and when changes occur.
We are long term investors
11 October 2019 – Martyn Surguy, Chief Investment Officer
In our latest Investment Update, which you can read in full here, Martyn Surguy, Chief Investment Officer, reiterated that we are long term investors, and “not unduly concerned by the vagaries of the current political climate”.
Parliament prorogued, government by tweet and the polarisation of political debate. Has the political environment ever been more toxic or harder to understand? On the economic front growth is slowing, the current expansion is one of the longest on record and the world’s two largest economies are locked in a trade war with no obvious endpoint.
Perhaps surprisingly, we are not unduly concerned by the vagaries of the current political climate or the short-term oscillations of financial markets. We are long-term investors. The real danger of short-term uncertainties and fear is their ability to blow investors off course from the strategic positioning required to deliver their goals. When markets look wild, many investors are tempted to move to the sidelines and sit it out in cash.
This may feel comfortable for a while, but basing a long-term strategy on the almost impossible task of predicting short-term markets is not a recipe for success. Often it is difficult to reinvest that cash – if markets rise many prefer to wait as their negative views become entrenched, while if they fall many also prefer to wait fearing further falls. Both routes leave investors underinvested and sooner or later markets run away from them. Discipline and patience are the key to long-term returns. In our view the best way to navigate shorter term uncertainty is through holding a sensible spread of assets that can withstand most market conditions.
You can view all our other Brexit related articles below.
31 January 2020 – Ahmer Tirmizi, Investment Strategist
Here we are, on the 31st January. As the clock strikes midnight (Central European Time), Big Ben may not bong in celebration of the UK leaving the EU but the clock will start ticking for negotiators who will be under pressure to flesh a trade agreement. Over the next year the UK will be in a ‘transition period’ – still in the EU, in name only – until 31st December 2020. In the meantime, there are three important stages to look out for:
Spring 2020: negotiations start – over the next couple of months the Prime Minister will form his negotiating team. Both sides will publicly set their stalls out for what they will look to achieve. Expect to hear more about fishing rights, concessions for the City and immigration thresholds. It’s likely that the government will continue with their line of no extensions and getting a deal by the end of the year.
July 2020: last chance to request extension: it will quickly become obvious that a comprehensive deal is unlikely by the end of the year. However, according to the withdrawal agreement, the government will have to request an extension to the transition period by the summer of this year. If not, the No Deal cliff edge becomes a reality again, at least in theory. The government is likely to stick to its manifesto promise of not requesting an extension. It has even gone so far as to put this commitment into law. This means they will continue insisting a comprehensive trade deal will be completed by the end of the year.
Q4 2020: 11th hour deal/extension/crash out: The market’s attention will likely be refocused on Brexit by this point. As the end of the transition period comes into view, we will likely face a re-run of the ‘will we, won’t we crash out’ saga of the last two years. As with the last few times, some form of 11th hour agreement is likely, but not without some uncertainty along the way.
When it comes to the 7IM portfolios, it’s best to not overthink UK politics. The goal of our global multi-asset portfolios is to be diversified. They are not especially vulnerable to UK uncertainty. This is intentional.
So while we worry about the future of UK politics, we don’t have to worry about the future of our portfolios.
Parliament finally agrees on something, that isn’t fit for purpose
30 October 2019 – Ahmer Tirmizi, Investment Strategist
The announcement of the general election on 12th December doesn’t come as much of a surprise. With six weeks to go, it’s too early to speculate but let’s lay out the things we know and what we don’t, to help guide us:
What we know?
- The Conservatives have been planning for it since Boris Johnson took office. The Prime Minister has done a good job of pretending to care about Brexit. That’s how he became PM. His actions up until this point appeared to be about Brexit but actually they were about one thing – winning a general election. The no-deal prep, the “rather be dead in a ditch” and the infamous letter without the signature – all designed to avoid losing votes to the Brexit Party. The announcement of a deal – keep enough One-Nation Tories onside. Get a third of the votes and win a majority. Simple.
- Labour’s dithering has been a problem but don’t count them out. Labour’s strategy has been less clear – and we use the word “strategy” loosely. The posturing around delaying the election in the name of avoiding a no-deal was intended to extend Brexit beyond 31st October. Probably so they could ask: “Where’s the ditch, Boris?” Labour and Corbyn were polling poorly before the last election but managed to rescue it in the end. The last election showed they have a slick social media operation which they hope will mobilise enough young voters, but other parties have caught on to this.
- Lib Dems and SNP are confident. After all, it was them who broke the deadlock in parliament to get this election in the diaries. The SNP will hope to hoover up votes in Scotland with a promise of a second independence referendum. The Lib Dems are the anti-Brexit party. No one knows what else they stand for.
What we don’t know
- The Brexit party are an unknown electoral force. The Nigel Farage circus has gone quiet recently, but the Brexit Party is still well funded and will be looking to campaign right across the country. The Brexit Party’s existence explains Labour’s dithering and the Conservatives’ selection of Boris Johnson. Watch this space.
- Referendums via first past the post. Brexit will be central to the election campaign. But there are some uncertainties around this. The referendum result was close and most polls suggest it would be close again – but how does this play out in a FPTP system? And how many people will vote based on Brexit when other issues are presented to them? Traditional lines of left and right may be thrown out the window – but which window?
- Campaign trails change the dynamics. With only 6 weeks to go, small surprises could make a big difference to the outcome. Particularly if they come late. We saw this at the last election campaign. The betting odds suggest a Conservative majority, but we wouldn’t bet on that just yet.
So what does this mean for our portfolios?
The outcome of the election is a double-edged sword. The economy and financial markets may either have to deal with a combination of a hardish Brexit and business friendly policies under the Conservatives or a softish Brexit and business unfriendly policies under Labour. This leaves UK assets under the same uncertainty we have seen over the last three years. Irrespective of the result, we continue to ensure our portfolios are well diversified and have global exposure. This means they are not especially vulnerable to UK specific concerns.
18 October 2019 – Ahmer Tirmizi, Investment Strategist
Say what you want about the Prime Minister, his time in charge of the country has not been boring. The political tennis of the last few months has been played at breakneck pace – most of the country is probably suffering from whiplash as we write this.
Boris Johnson’s tenure as Conservative Prime Minister started off with spending pledges that Labour would’ve been happy with. There was also the vote leave cabinet and the spending on no deal preparation while claiming a no deal had a “one-in-a-million” chance. Then there was the pronouncement that he would rather be “dead in a ditch” than request an extension, while claiming he would obey the law that required he request that extension. At one point the PM went from not wanting an election to wanting one, while the leader of the opposition went from wanting an election to not wanting one. Currency traders have been held hostage to this game - the last six weeks has seen the pound move from a low of $1.19 to a high of $1.29.
Now we are at a tie break – the “Boris Bargain”. The details of the latest deal are not important at this stage. What is important is that Boris Johnson has put forward a deal. Unlike Theresa May he has been in favour of leaving from the start. Furthermore, he was not only willing to divert government resources to preparing for a no deal but, unlike May, he made sure he shouted this from the rooftops. This gives him credibility with voters and MPs who are in favour of leaving with a no deal. If the PM who is in favour of a no deal is willing to put forward a deal…it must be a good deal, right?
If we assume that the EU will ratify the deal there’s still the pesky issue of Parliament. This coming Saturday, or as the press is now calling it, “Super Saturday” – how the country must long for when that simply referred to the 2012 Olympics – we will find out exactly what it thinks of the ‘Bargain’. Things are shaping up for Parliament to reject the deal. The DUP has already said it is not in favour, which possibly rules out some backbench Conservative MPs too. But as we said two months ago, the PM must be hoping that all concerned are just weary enough to allow this through – if Brexit means MPs have to work on a Saturday maybe the deal has a chance! An alternative may be that Parliament decides to put the deal back to the public in a confirmatory note. At this stage this is still mere speculation.
We have, for a long time now, said that a no deal was extremely unlikely. This deal suggests that the view is playing out – we now know what Johnson wants. But this game of political tennis means that we couldn’t rule it out, and still can’t. In this world it doesn’t pay for investors to make decisions based on fundamentals – especially when Boris Johnson is one of the players. Just look at how quickly the pound has moved. However, as we move into the final set, the fundamentals may come back into play – with implications for sterling, gilts and UK equities. We will update next week when we have more.
01 October 2019 – Hosted by Verona Kenny, Haig Bathgate & Tony Wickenden
No one knows what is going to happen with Brexit. No one knows which country is going to face the next crash. But clients’ individual needs don’t change. And they will still look to you for help to navigate the challenges ahead. So how do you plan when outside influences are ever shifting? And how should you be investing when political uncertainty is rife worldwide?
06 September 2019 - Ahmer Tirmizi, Investment Strategist
The first screening of the low-budget Star Wars spin-off has been aired. The Rebel Alliance in this instance is not as exciting as an interstellar coalition of revolutionary factions. Instead, we had twenty-one Conservative MPs from the Shires who decided to vote against their government’s wishes.
The reviews are in and have been mixed. Words like “humiliating”, “bruised” and “cornered” have been used by one section of the press to describe the Prime Minister’s predicament. Another section calls the Leader of the Opposition a “chicken” and a “hypocrite” for refusing to agree to an election. No prizes for guessing which papers have said what.
More seriously, the events of the past two weeks have had more twists than any scriptwriter would dare to squeeze into a movie. For starters, it was only ten days ago (at the time of writing) that the Queen agreed to prorogue Parliament. Parliament is still to be suspended between the 9 September and 12 October, but this isn’t the big news story anymore.
We were expecting to write about a forthcoming election. Once parliament was prorogued it became clear what the Johnson-Cummings plan was: to out-Farage Nigel Farage. Narrow the scope for debate in parliament, threaten a No-Deal and provoke a response from parliament. And then, you can say you were “thwarted” by the Remain establishment. Brexit Party dealt with, election campaign sorted. Easy!
Parliament followed the plan at first by immediately demanding that the Prime Minister seek an extension to the Brexit deadline up until 31 January 2020. This motion was passed with the help of those twenty-one Tory MPs plus Philip Lee, who moved over to the Lib Dems. For their troubles, those twenty-one have been effectively kicked out of the Conservative Party. This decision by Johnson has ripped through his slim majority in parliament – perhaps to try and ensure that an election would happen. To top things off, Johnson has continued to claim he will not go back to the EU, implying that the only way to implement the law just passed is that we would need a general election before the Brexit deadline.
Everything seemed to be going to plan. Political commentators were blocking out their diaries for 14 October (and so were we). But the government, requiring a two-thirds majority, has failed to get the election they were after. Labour and other opposition parties are claiming that they will only support an election once the Brexit extension bill has become law. So, we shall wait and see.
What should investors do?
Away from the Westminster bubble, the Pound has reacted positively to the likely extension, reaching US$1.235 from a low of US$1.19 a few days ago. From an investment standpoint, this can feel like a worrying time to invest. Our view that parliament would block a No-Deal has come to pass, justifying our overweight to sterling. But a potential general election keeps No Deal on the horizon – it is one thing to try to predict politicians, another to try and predict the electorate.
However, we believe our globally diversified portfolios are well-placed to navigate through the UK turmoil. The 7IM Balanced portfolio has around 30% in foreign currency – in a world where the UK does crash out of the EU, you could do worse than hold US Dollars, Yen and Euros. Additionally, the ‘UK equities’ label is misleading. The ‘UK’ here refers to where the company is listed, rather than the country where it sells its products and services. Around two-thirds of the revenues of large-cap UK equities come from outside of the UK – London-listed global pharma companies, for example, should be okay in a No Deal world.
Of course, this article has a read-by-date on it. A sequel to the movie described above is looming, but the release date is unknown. As is the story arc. There has been speculation about the script: an election is likely to be announced soon, but the date is still anyone’s guess. As is the outcome of the election. The current polls suggest Johnson could get a majority - as they did for Theresa May just before she called an election in 2017. One day the polls will get it right!
We will update further on the election and the investment implications once we know more. Meanwhile, get the popcorn ready. This series is likely to run on and on.