How are we managing the True Potential Portfolios in respect of Brexit?
Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.
Chris Leyland, Investment Director, takes a look at Brexit.
Brexit is a challenge for all concerned and the overall outcome is unknown and sufficiently opaque that it would be unwise to try to place a trade around Brexit.
What can be looked at is what are the facts. After the initial referendum, Sterling devalued significantly and whenever a Brexit deal looks less likely Sterling has fallen. Any positive or negative news will play mainly through currency markets.
For the True Potential Portfolios, our 9 managers all have differing ways of tackling currency risk using hedging at differing levels or currency overlays to help mitigate currency risk. The beauty of the Portfolios with their style diversification is that we are positioned for either a soft or hard Brexit. As the Brexit situation becomes clearer, we have the ability to add to the manager styles we feel would be most beneficial.
Outside of currency, diversification is paramount, particularly within an uncertain political environment. Being invested worldwide, not just in the UK and Europe and also being invested in a myriad of assets, designed to be lowly correlated to each other thus offering solutions for every type of Brexit scenario.
A question I am being asked right now is should I move to cash? Surely this is a safer option?
The way to make good long terms returns is to stay invested and compound up growth. This will not always be comfortable but by letting emotion come first you run the risk of selling at the worst possible time crystallising negative performance and not being able to make that performance up. Over the longer term markets have always trended upwards.
In an era of low interest rates, the only way to make a decent return is to embrace risk and be invested. The days of cash in the bank offering rates of 5% are long gone and the likelihood of interest rates climbing back up to historical levels is remote. With inflation at over 2.2% and cash returns significantly lower than that, inflation is eroding away returns for cash investors.