Market Outlook | Brexit - Sell Funds Now?

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3rd Jun '16 by webvivre

27 comments 19403 reads

With Brexit referendum approaching with a possible Brexit should I sell my portfolio which is producing a good level of income? Then buy back when the market stabilises. Or hold tight and sit it out?

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Webvivre

Premium Member

27 comments

marben100

5th Jun '16

I won't give advice, but say what I am doing:

For me, trying to predict a) what the result will be; and b) how the market will react seems futile. As an investor, I prefer to ride it out but at all times I keep a certain level of cash aside to be able to take advantage of bargains, should they arise. At present this is a bit lower than my target of 11% of my SIPP portfolio, at 7.5%. That's because some investments I favour have sold off already due to fears about the referendum, presenting opportunities to buy them at favourable prices.

To some extent my portfolio is hedged against a "leave" outcome, in that I have significant exposure to the US$ (which I would expect to gain against sterling in that eventuality), through a number of investment trusts: Ranger Direct Lending Fund (LON:RDL) , HarbourVest Global Private Closed Fund (LON:HVPE) , Fair Oaks Income Fund (LON:FAIR) , Worldwide Healthcare Closed Fund (LON:WWH) . A number of my individual share investments generate significant revenues from overseas earnings, which would also benefit from a fall in sterling.

Further I expect that a "leave" outcome would generate geopolitical instability, which is generally good for the gold price, so I have a couple of investments in producing gold miners, whose value is geared to the gold price (these have been star performers in my portfolio YTD).

Cheers,

Mark

Becks

5th Jun '16

I agree with the comments about the bookies and Brexit. Check out www.politicalbetting.com for more on this topic and some of the more astute articles on the political scene.... much better than the dailies which have an agenda to support.

A further thought.... the FTSE 100 is a very international index - with a relatively low reliance on the UK, whereas the FTSE 250 is much more reliant on things at home. If you are in trackers or pseudo trackers of the FTSE100 I wouldn't worry too much either way. Watch the FX rate to the dollar though: that ought to be a much more volatile ride!

JMLDutch

6th Jun '16

Exactly. The majority of FTSE 100 earnings are non-GBP. If anything, the FTSE 100 should go up in the event of a Brexit. A Brexit will lead to a devaluation of the pound, and therefore increase GBP-denominated FTSE 100 earnings.

Anyway, from what I have read the FTSE 100 would crash in case of a Brexit, which, if true, would in my opinion be irrational, but a great buying opportunity.

TraderTim

6th Jun '16

I agree that the vote will probably result in Remain, but think the Markets will dip in the build up and investors and traders get a bit tetchy. However, as has been mentioned, if you are investing then it's probably best to stick with it. I certainly wouldn't sell everything. Data suggests that time in the market is better than trying time the market highs and lows.

Having said all that, June is typically a terrible month for the FTSE in ordinary circumstances as has been shown by Stephen Ecketts analysis in the Stock Market Almanac. It shows the first few trading days of June are generally positive, but then begins a decline through the rest of the month. If you throw in the Referendum uncertainty and Fed decision on interest rates this June, then this could exacerbate the downturn. That said, I don't think it is worth selling up completely - maybe top-slicing some stocks with the hope to get in at a lower price amid the uncertainty might be a prudent move? If in doubt, I'd hold on though.

http://stockmarketalmanac.co.uk/2016/06/the-stock-market-in-june-3/

JohnEustace

6th Jun '16

I'm sitting on more cash than usual until after the referendum. For the last few years there's been a summer or early autumn sale on shares at some point. I wouldn't say to sell everything but it could be a good time to cast a critical eye over the portfolio. You don't say which shares you have - do they earn their money in the UK or internationally? It seems the focus is mainly on sterling volatility at the moment as opposed to equity markets..
Markets can't correctly price an unknown binary outcome. If you feel like a gamble or just need to be doing something and think Brexit will damage your wealth you might as well put some money on at the bookies - as good a hedge as any and avoids all the dealing costs to sell your shares and buy again.

andrewdb

6th Jun '16

I'm sitting on more cash than usual until after the referendum.
Me too.

My other action is to buy (more of) conservative us stocks (not eu) - like MMM and JNJ
If we stay in I don't see GBP/USD changing much (ie not losing much)
If we leave I do see GBP/USD falling and lots of turmoil in the UK/EU (possible gain - but only if you were thinking of buying us stocks anyway due to dealing/currency exchange costs) ...and large us stocks not really changing much.

There was a vv good article by Chris Dillow on seasonality by months in IC and that says June is a vv bad month to buy in.

Of course DYOR/YMMV

TangoDoc

6th Jun '16

A agree, in general, with Marben. I do not propose to sell but may well add if stocks I favour become bargains in my eyes. It sounds very much as if, even if there is a vote to leave, it may not get to that, in any case, because the vote isn't binding on the government and were it to go to a vote in the present parliament, it would lose by 2 to 1.

Flackwell

6th Jun '16

You mean because the govt lacks integrity they would ignore the views of the electorate

What a country we have now in this EUtopia

snickers

6th Jun '16

Do you think the lack of money on Leave is maybe because a Leave vote, for a Leaver, will be its own jackpot?
& Remainers won't want to boost the confidence of Leavers by loading bets on the Leave side and shifting the odds.
I'm also guessing that, because this is gambling, and gambling is wish-fulfillment, people don't back the other team. Leavers might like a little boost if the vote goes against ~~them~~ us, but the winnings would feel tainted.

JohnEustace

6th Jun '16

After reading all the headlines about the pound sliding on Brexit worries, I see just now that it's actually up on the day.
I think the answer is to go away somewhere without any news bulletins or papers and come back when it's all over.

Mechanical Bull

6th Jun '16

I'm also sitting on more cash than usual - about 30%. I try to avoid making predictions on macro and political events, but in this instance it seems sensible to assess the risks around Brexit and take appropriate action.

The FTSE100 and 250 have broadly been tracking the DJI and other major indices over the past 6 to 12 months. Over the past few months things have basically been moving sideways, which all suggests that the markets are expecting the result to be Remain.

This is surprising given the closeness of the polls and shortening odds for Leave. If the result is Brexit we are surely in for a extended period of market and political upheaval. It will be many months before we know what the UK's new trading relationships will be and how the UK financial sector will operate outside of the single market. Until the dust settles, business will be reluctant to invest while banks will be reluctant to lend.

Cameron will likely be history, but whoever is PM will not only need to undertake a very difficult negotiation to withdraw from the EU but will most likely be confronted with a recession, as well as a deeply divided government. I would be surprised if the FTSE didn't drop at least 10% within the first week, but who knows? We are due a major correction so it could be a lot more.

On the other hand, if the vote is Remain, it will be business as usual. The markets may jump up a couple of percent on the 24th June but overall I judge the downside risks as being at least 3-5 times that of the upside. So, I would quite happily take the risk of missing out on some of the gains of a Remain vote in order to reduce the likely much larger risks associated with of a Leave induced market correction. Of course this would also leave a cash pile to jump back in at lower levels.

Ramridge

7th Jun '16

Hi Mechanical Bull
My assessment is fairly close to yours and risk mitigation strategy is a cash pile of 25% plus a portfolio more weighted towards solid FTSE350 high dividend paying shares.

If the vote is to remain, then I see little impact in the medium term purely caused by this factor.
If the vote is to leave, then there will be market volatility in which case I will use the cash pile to hunt for bargains (or at least what I perceive to be bargains!).

AnonymousUser39114

12th Jun '16

In a couple of years, will this all volatility look like a little sqiggle on a long term graph? I suspect in all likelihood it will.

Maybe mine is a dumb strategy, but I have closed down any buying or selling until July and I am trying not to look at the prices or get sucked into the news, just review specific rns.

Ostrich or genius - you decide?!

vaticinator

13th Jun '16

My strategy has been to move some of my investments into gold and silver mining ETFs and wait for the reversion to the mean, if and when gold and silver prices move up.

Gold mining assets have been written down because of historically low precious metal prices leading to high PEs, putting off investors. I'm thinking that if gold rises as a safe-haven of value, gold miners will rise even faster. My view is that risk reward is skewed to the upside.

It's worked OK to date.

Defender16

23rd Jun '16

My strategy has been to move some of my investments into diamonds. The diamond price is on the rise, there are several major diamond sales in the next few months, there have been a number of significant diamonds dug up recently and the market is steady and does not suffer from the volatility of the major gold, silver and other metal miners. The downside is that you have to be careful that the mines you invest in are not- either openly or by some circuitous means - connected to the 'blood diamond' countries that were so prevalent earlier this century. Fortunately this is less of a concern now, and the market seems to be steady and growing at a realistic if not exciting pace. So fat this year I am up about 17% on the three diamond miners I have picked. That will do niceley.

Defender16

23rd Jun '16

The problem is that, as the world in general claws its way out of recession you are going to be exposed to a falling gold and silver price with a few upside prices that might encourage you to stay invested. It will be a wise investor who can call it right and get out before prices slump.

Rusty2

23rd Jun '16

For remain: Banking/finance, Housebuilders/property etc, certain retailers such as car dealers, recruiters.

Fo leaving not sure maybe Oil (£ will fall), Ultilities, Food producers, supermarkets, comapnies that trade abroad but not mainly in EU.

Defender16

11th Jul '16

FTSE 100 is at 6658 right now. how long can this rally go on? There has to be a market top soon. Whether it is at 6700 or 6800 who knows? But I m beginning to think now is the time to top slice and take some of the gains. I work in Oil&Gas (legal) and for the time being I don't think it's worth going anywhere near oilers. Housebuilders might be worth a shot on a potential bounce back, but right now I think I am happy to take some profit and wait and see what happens in the next 2 weeks.

Defender16

11th Jul '16

I agree with that sentiment! Who really knows when the right time is? No one probably, but we've had a 12% rally since Brexit. It must be getting near the top by now?

Rusty2

11th Jul '16

Oil has bounced back quite well, my oil shares are up about 20% in last 2 weeks, yes think I may trim some profits soon. Housebuilders went down a lot after Brexit but they have gone up about 20% also in last few days, still well down though.

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Webvivre

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