EuropeanJun 20 2016

Investment managers brace for EU referendum

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Investment managers brace for EU referendum

With the European Union referendum vote expected to be very close, investment managers have been making changes to their funds.

Michael Stanes, investment director at Heartwood Investment Management, said if the UK votes to leave the EU, the short-term economic consequences will undoubtedly be painful for financial markets, as well as the UK and continental European economies.

He said there are so many variables – In or Out, the durability of prime minister David Cameron’s premiership, the stability and cohesion of the European Union itself - that it would be futile to position for any one definitive outcome.

Even if the UK votes to stay in the EU, Mr Stanes said a close result may well provide more political uncertainty.

Mr Stanes said advisers should be making sure their clients are positioned pragmatically: able to defend in periods of capital loss and take advantage of valuation opportunities where there is fundamental justification.

Over recent months, he said Heartwood has raised cash, moved into more liquid instruments, such as large-cap equities and reduced overall levels of equity risk.

He said the investment house has also reduced property risk, trimming exposure to those instruments with a higher correlation to equities.

Mr Stanes said he has also reduced currency risk.

Shaun Port, chief investment officer of Nutmeg, said he too had reduced holdings in equities in Europe and Japan, removed all exposure to the Euro and cut holdings in sterling-denominated corporate bonds.

The funds from these sales have been put into increasing cash holdings, adding to holdings in government bonds with a long time to mature (more than 15 years) and gold.

Mr Port said: “Overall, these measures are designed to reduce risk in the event of a Leave vote, but to not overly damage future return prospects.”