Having plummeted below 5800 at the start of the day on Friday after the refeendum outcome was revealed, the FTSE 100 had breached 6200 by mid-afternoon, suggesting it was among the global indices least affected by Brexit.
That’s not great consolation for those with diversified exposure to global equities, but to put it in to context the domestic market was trading much lower for longer during February’s turmoil.
The reaction from wealth managers today has been mixed, some buying back in to risk assets and others, well, doing very little.
Alan Higgins, chief investment officer at Coutts is one of those who prefers to wait it out: “Our inclination if declines are sharp enough is to be buyers on weakness, but as it stands today with the FTSE 100 just down 4-5%, we are not moving yet.
“Probably the biggest market impact has been Japan, partly reflecting the yen, which has overreacted the most, while Europe as a high beta market has also suffered.”
Don’t sell indiscriminately
James Calder, research director at City Asset Management, takes a similar stance, stressing the worst mistake would be to start selling out of funds on an indiscriminate basis.
He explains: “We are still comfortable with our asset allocation. It is interesting to know that some of the defensive assets that we like – such as listed infrastructure vehicles – pretty much have held up well. Sterling aside, I think the market has taken this quite well. The drop in the FTSE is a lot less than some of the more bearish predictions.”
Other wealth managers were happy to engage with markets this morning. Having raised high levels of cash prior to the vote up to 24% in his Total Return portfolio, David Coombs, head of multi-asset investments at Rathbones, confirmed he would be selectively adding to risk today.
“Most likely this will be through adding to UK overseas earners, as well as selective US names that have been sold off,” he said.
UK overseas earners and selective US names that have sold off were on the shopping list of Richard Stammers, investment strategist at European Wealth.
He added: “Equally we will be looking for any interesting opportunities this may throw up, such as dollar-denominated UK bonds, which are likely to be sold indiscriminately by foreign investors.
“We will however retain some cash given the likelihood that volatility is likely to continue in the short term, and there will be future opportunities that we will hope to take advantage of.”
Darkest until the dawn
Richard Philbin, chief investment officer at Wellian Investment Solutions, urged investors to look beyond the “eye of the storm” to a longer-term view of where markets are headed.
“Everything looks as black as it can possibly be. But we’ve gone through this kind of thing before with the ERM crisis, Black Monday, Fukushima and Lehmans, and we always come out the other side.
“When you invest it should be for the medium to long-term and you should be aware of the degree of risk that you are willing to take for the degree of return you are hoping to achieve. Construction and property stocks have all been absolutely slaughtered today but if you have a diversified portfolio it is time to think about the future.”
He added: “It will be interesting over the next six months to see which managers have played this well.
“In reality, this is the perfect opportunity for active managers to show their worth. Even though the market might be incredibly volatile, there will always be different opportunities when stocks are going up or down in different weights. We’ve seen some very good numbers from resource stocks this morning, for instance.”
Don’t react too quickly
Finally, Dan Kemp, chief investment officer for Europe at Morningstar Investment Management, called for prioritising “research over reaction”.
“The danger is that investors react too quickly; that they underestimate the range of outcomes, and make predictions with too high a level of confidence,” he warned.
“So, we are starting with research and then will have a clearer view of where the valuation opportunities are. This is a time to slow down the investment process and arm oneself against the flight or fight instinct.
“We are beginning to see opportunities given the extremity of some of the moves, but this is not simply a valuation event, where prices have fallen for no reason. It is an event that impacts on fundamentals, it broadens the bands of uncertainty.”
That said, he added: “Investors shouldn’t think they can sit out the volatility and wait until there is absolute clarity before coming back in.”
