The markets are always changing, shifting, evolving. That’s what the Nutmeg investment team finds fascinating about them, and why we offer our fully managed investment portfolios. But sometimes, events like Brexit cast a shadow of uncertainty across a longer period. We wanted to share how we plan for uncertain events and how we’re applying these principles to Brexit.
It can be difficult to know how to approach something uncertain. By its very nature, it’s disconcerting and uncomfortable.
But at Nutmeg, we never shy away from this challenge. Far from it. We use a clear framework to manage and track the risks and opportunities posed by uncertain events.
How we manage uncertain events
First off, we make sure to leave our personal views at the door. More than 100 years of collective investment experience has taught us the critical importance of being objective without compromise.
When we start to discuss an uncertain event, we immediately find ourselves in the business of potential outcomes. We start by breaking these outcomes down with a view to covering all bases. We want to air out all the ‘what ifs?’ by discussing them openly and being careful not to rule any out at this stage.
We then review the news and research that is already out there on the topic. It’s important that we recognise any politically or personally motivated leanings from these sources too, to keep excess ‘noise’ to a minimum. Newspapers are there to be sold, not always to fairly represent consensus.
If there’s a timeline associated with the event, even though that could be uncertain in itself, we layer this on top of the potential outcomes. This gives us a guideline to start thinking about how probable we think each one could be. We give our views independently and then talk through each person’s rationale to understand the balance we want to strike as a team. From this we can form a consensus on the probability of events, around which we can manage the risk of our portfolios.
From here, we repeat the process regularly to incorporate ‘new news’ on the subject and ensure we’re tracking how our view is changing. This informs whether we need to alter our position, and should we need to, we could start to discuss how.
How we’re applying this to Brexit
Since Brexit first burst onto the political stage, we’ve been applying all of the principles we’ve described. We started applying them in the run up to the vote, which allowed us to manage portfolios effectively through the period where the result was announced.
And we’ll continue to do so, tracking the negotiations and political movements with the expectation that a clearer picture will gradually begin to emerge.
We talk about Brexit every day, since it features on the news agenda and in market views with the same frequency. Most of this information is grouped together and fed back into our review process to guide our thinking. Only developments that are seen as having the potential to significantly impact our investment position would lead us to consider making changes more reactively than that.
A final word on how we’re positioned
In all, this means we can feel confident in our position despite the long shadow of uncertainty that’s come to define Brexit as a concept. Our portfolios take a global view of investing, and just as we did around the EU referendum result, our team are able to diversify our portfolios’ risk across a wide range of global assets.
Our main options for altering our position, if we felt we needed to, would be in changing our exposures to UK assets, including bonds, equities, and the pound. We might also choose to take extra exposure to other global assets to manage developing risks. In July, for example, we felt the probability of a ‘hard Brexit’ had gone up, so we chose to increase exposure to the US dollar and Japanese yen in response.
You can expect us to continue managing and monitoring Brexit developments in this way. We’ll be sure to keep you informed through dedicated blogs like this one and through our monthly investor updates.
As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest.