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Brexit: How the Moneyfarm Portfolios are prepared for political uncertainty

It’s been busy for Prime Minister Theresa May, as she tries to get the UK and EU behind her Brexit deal. This week the UK and EU agreed a draft declaration Brexit bill, but the hard work isn’t over. She still faces a tough time getting the deal passed by UK parliament next month.

After briefing the Cabinet on the 585 page document last week and initially getting their backing, the resignations began. It starting with Junior Minister Shailesh Vara, and included Brexit Secretary Dominic Raab and Work and Pensions Secretary, Esther McVey. Theresa May survived the threat of a no confidence vote, as many journalists described the government as “in turmoil”.

The news flow is fast and political tensions have flared, but we knew it would be at this stage of the process. Getting everyone on board with a draft negotiation is always going to be difficult, especially when there’s so much at stake. Whilst political tensions have risen, this hasn’t adjusted our view on Brexit.

We might not have the crystal ball to tell us what’s going to happen over the next few days, weeks and months, but we do understand how the potential scenarios ahead of us could impact the market.

Monitoring the markets on your behalf, our portfolio managers have been adjusting your portfolios since the referendum result was announced to limit the downside and capture as much upside as possible in the final Brexit outcome.

How portfolios are positioned

As expected, negative news on Brexit has caused sterling to weaken and long-dated UK government bonds to rally – presumably on the prospect of lower growth. The FTSE 100 has been bit mixed, given the twin impacts of weaker sterling and weaker domestic growth.

At the last rebalance, we reduced our exposure to movements in GBP by switching to hedged products. When sterling falls in value, international assets tend to increase in relative value. As our portfolios are globally diversified, we have benefitted from sterling weakness in the past. However, this positioning leaves us exposed if there is a Brexit result that favours sterling. As a result, we have protected more of our portfolio by increasing our exposure to hedged products. 

We saw our recent portfolio rebalancing as an opportunity to manage risk and as we see sterling move 1% in each direction from day to day, it seems like a reasonable decision.

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In terms of bond exposure, our positions in the inflation-linked bonds in our lower-risk portfolios with their long duration have helped during periods of sterling weakness, but do add to volatility in the portfolios.

The approach of our portfolio managers

At Moneyfarm we prefer to manage risk for our investors in line with their risk appetite – especially during periods of uncertainty.

Going forward, Theresa May will look to get a nod from the EU ambassadors before the end of the month, with the deal being voted through parliament before the end of the year. The deal can be stopped at time, however, so this process isn’t going to smooth sailing and uncertainty is likely to prevail for some time to come.

Against this backdrop, it’s always tempting to try and trade news flow, but that’s not the philosophy our Investment Strategy was built on. We believe doing less is better than doing more.

When looking to grow your money for the future, it’s important to build your investment portfolios with quality investments that will stand the test of time, and to ensure your investments reflect your appetite for risk.

Yet our cautious approach doesn’t mean we aren’t monitoring the markets and your portfolios closely. We keep updating our Brexit view as the political and economic backdrop evolves, and adjust our portfolios to reflect this.

If you have any questions about the investments in your portfolio or Moneyfarm’s Brexit strategy, book a call with one of our Investment Consultants.

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