Update: Savvy Money Sitting Out the “Brexit” Short Term Impact
As Friday’s vote counting continues, the “leave” side led with 50.9% of votes with “remain” trailing on 49.1%. The gap between the 2 sides stood at about 191,000 votes with 144 of the 382 count centers reporting results. Stay tuned…
All over the world financial advisers and brokers are calling clients and urging them to take steps to “make” or “save” money in light of the British vote on EU membership Thursday.
All over the world savvy clients and participants are ignoring them and standing aside.
We do not know what happened yet Thursday when Britain voted to either leave or remain in the EU. What ability to translate that extremely uncertain knowledge into advantage is very doubtful.
The only thing for certain about “Brexit Proofing” your portfolio is the transaction costs.
Just ahead of the critical British referendum on Brexit the polls were tight, with enough variety to please all sides.
Votes for “leave” nosed ahead in 2 late polls released Wednesday by 1 and 2%, while the probability as expressed by bets on the Betfair exchange moved to 76% for “remain.”
In either event, it is fair to expect a certain amount of frightening market volatility both during and after the election.
There is no avoiding it: a vote to leave would have by far the more damaging short-term impact.
British economic output would likely be quite substantially hit and large swaths of its business model would come under threat.
The Big Q: Is my outcome likely to be improved by taking decisive action?
The Big A: Probably not.
The market moves under both scenarios will be jerky and unpredictable, and this applies not just to Sterling assets.
The future of the EU is at stake and the event rises to a level of gravity that central banks around the world are preparing for all the contingencies they can devise. Leave them to it.
While parts of the financial media and advisory and broker community create a sense of hysteria around events like these, the advantages of joining in very questionable.
That is not to say things will not happen. But that is the name of the financial markets investment game.
What has happened during all the clamor is the following:
- Outflows from UK equity funds were the 2nd highest on record, a net $1.1-B, in the week to 15 June, according to fund tracker EPFR.
- Lipper data show assets in the UK fund management industry have fallen by almost 20% over the past year, down by about $300-B to $1.35-T.
By attempting to go in and out of markets and assets around an such an event, participants take on an unknowable series of risks.
For example: guessing wrong about the direction of markets and missing out on a spectacular up day.
A JP Morgan Asset Management study found that an investor who missed out on the 10 best days in the S&P 500 stock index between Y’s 1993 and 2013 would have seen their annualized return fall to just 5.4%. That compares to 9.4% annualized for those who stayed in for the whole frame.
A University of Michigan study of the 7,802 trading days from Y’s 1963 to 1993 found that just 90 days, a bit more than 1% of all days, generated 95% of all returns.
Britain’s decision to “remain” or “leave” will have far-reaching impact on the shape and performance of its economy and its publicly traded companies.
But, this is a complex situation, with much to be determined by the steps taken by the UK and its trading partners in the months and years after the vote tally.
The way play this event was slowly, and not by reacting to polls and emotion.
So, Friday being prudent means standing aside.
Update: It looks like ‘leave’ will edge it as Voters seeking a British exit from the EU are leading, as 33% of official results have been declared in Britain’s historic referendum.
The referendum vote on whether to remain in the EU stay in the European Union has split the nation – and had financial markets around the world on edge.