The Brexit Effect and the Importance of Diversification

Over the weekend, we saw a continuation of the political fallout following the Friday morning’s announcement of the referendum results. The charge, started by David Cameron’s resignation, has since been followed by a coup in the Shadow Cabinet and we are expecting further developments to follow.

As we know political events and personalities are not the primary drivers of long-term investment performance, we turn our attention to the markets. Discounting our individual views on what caused the majority leave vote, we look ahead in to the future and what this result means for investors.

Our view has always been that global diversification through multi-asset funds is the most appropriate way to invest. A single market fund has nowhere else to go when domestic conditions become challenging. A multi-asset fund can, and will, look to employ money in the most suitable markets to both protect and grow wealth. In the lead up to the present situation, True Potential fund manager partners have been scaling down their UK exposure and investing in overseas markets. Our True Potential Wealth Strategy funds have given investors a good level of protection, insulating them from the worst of Friday’s market reaction to a result that took many by surprise. Our Managed Portfolio Series takes diversification to another level as we build on the strong foundations of opportunity across global markets and the skills of our world-class investment partners.

Our view is that once the dust settles, the vote will weaken the UK economy in the short-term and we will see a continued volatility with both positive and negative news being amplified through stock prices. However, attention will rightly turn again to fundamentals

• Global valuations look reasonable
• The US economy remains stable and in good health
• Investors with both asset class and currency diversification have insulation against the current chill

Active investment managers can make a real difference, as we have seen in our fund performance. Now is not the time for complacency or passive resignation to events. Strong leadership is required followed by decisive action and this is demonstrated in our funds and portfolios.

The key message here is to remember the importance of adequate diversification of funds which are not restricted within UK equities. It is important to invest in both a broad range of geographical areas and a broad range of asset classes, some of which act as safe havens for investors during current events.