This month’s question: ‘Are you changing clients’ asset allocations in light of the general election result?’
Richard Ross, chartered financial planner at Chadwicks -
"The result means the chances of us leaving the EU have receded considerably. The negotiating timetable was impossibly tight even before the election was called. In two years’ time we will enter an interim arrangement and there we will stay indefinitely, trapped in a ‘worst of all worlds’ limbo.
Most of the exceptional post-referendum investment gains have been illusorily. The fall in the pound has seen the nominal sterling value of overseas assets and income increase. The real value of these gains will be eroded by inflation. Much of the currency depreciation was in the expectation of a hard Brexit, and recent economic data does not auger well for the future.
Our core portfolios have a UK bias, justified by the multinational nature of many UK-listed firms and the perception of relatively low political and currency risks.
We are considering the extent to which this bias remains reasonable and the degree to which our portfolios are exposed to the effects of a strengthening pound if the risks from a hard Brexit diminish. Where we have exposure to small and mid-cap UK companies we are asking whether this remains appropriate given their, typically, greater dependence on the domestic economy.
Overall, these are minor tweaks to our long-term strategy. In these uncertain times diversification is the key to managing risk.
I am convinced the election that will most affect our economic outlook was not the shambles here, but the one that delivered a strong and stable government in France."
Alan Chan, director & chartered financial planner at IFS Wealth & Pensions -
"We’re a chartered financial planner firm and run in-house model portfolios for many clients.
We do not intend to change asset allocations in light of the election results. The portfolios were built to be resilient and forward-looking so they can weather most storms. Our philosophy has always been to buy and hold, and to make informed decisions in a timely manner, not to overreact.
Although the UK is an important market, our portfolios benefit from global diversification. Clearly, the election result was not as everyone had expected, but then again, neither was the Brexit referendum or US presidential election. What’s clear from these events is that the initial market reactions proved to be short-lived. Fortunately, the political drama in the UK is likely to have had little impact on the global markets in the long-term.
In the meantime, a weaker sterling has been beneficial to UK large-caps as their overseas earnings receive a currency boost. Also the prospect of a soft Brexit being pursued by the Conservatives is good news for many sectors in the UK.
Although there may be increased volatility in the UK markets, we don’t believe that chopping and changing asset allocations is the optimal response, as this may make matters worse by trying to time the market. We prefer to ride out the storm and make a judgment based on long-term expectations.