The big news since our last monthly investment update is that we now have a confirmed date for the EU referendum – 23 June. The outcome of the referendum, which will decide whether Britain leaves the EU or stays in it, could have a big impact on financial markets. This is an important consideration in how we manage customer portfolios over the coming months.
The potential implications of Britain voting to leave the EU – known as ‘Brexit’ – is already starting to shape financial markets. We immediately saw a drop in the value of sterling – though it has recovered since.
We have yet to see any significant pressure on the value of UK stocks and bonds but we are preparing for a range of future scenarios as the campaigns to leave and stay now start to gather momentum.
How will the vote impact investments?
The common view is that if we vote to leave the EU, we will see a big fall in the pound and UK stocks, though bonds could do reasonably well.
According to the latest polls, there’s around a 30% chance that the leave campaign will win, but with almost one in five voters undecided and plenty of time for campaigners to gather support, that could yet change significantly. Plus, the polls ahead of the referendum on Scottish independence and the last general election were not wholly reliable.
Are you making changes to portfolios now?
We’re not making any changes to customer portfolios this month. From the data available, we’re mindful there is a relatively high probability right now that we’ll stay in the EU. However, we’re also planning what to do if the opinion polls shift, which would no doubt impact financial markets in the short term, and what to do if we do actually vote to leave the EU.
In short, this planning involves moving investments out of the UK if we think the risk to UK stocks is too great. We take a global view when investing, and invest in a wide range of assets, regions and industries, so there are many good investment options for us to evaluate should the UK market become unattractive.
How have stock markets performed recently?
Financial markets have been very up and down at the start of the year, and mostly down in January and February – as much as 11% in Europe in the first nine days of February, in fact – but we’ve seen some recovery so far in March. Oil has bounced back from its $27 low to $40, broader commodity markets are stabilising and Chinese markets have calmed somewhat.
While it has been very volatile, with big jumps and falls in stock prices most days, this isn’t uncommon in investing cycles. It’s important to remember at such times that you need to stay calm and stay invested. To try to time these ups and downs can be disastrous.
And how have Nutmeg portfolios fared?
Despite the big falls in global stock markets our high risk portfolios remained quite flat in February. This was helped by currency movements. The medium and lower risk portfolios lost around 1%.
In the first two weeks of March we’ve seen some fairly good recoveries across our portfolios.
About this update: This update was filmed on 8th March 2016 and covers figures for the full month of February 2016 unless otherwise stated. Data sources: Bloomberg and Macrobond.
Risk warning: 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. Past or future performance indicators are not a reliable indicator of future performance.
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Shaun Port
Shaun is the chief investment officer at Nutmeg. He has over 25 years’ experience developing and implementing investment strategies for clients ranging from central banks to pension schemes to charities and private individuals. Shaun holds a degree in Mathematical Economics from the University of Birmingham and is a Chartered Alternative Investment Analyst. He can be found tweeting @ShaunPort.Other posts by Shaun Port
