Up, up and Away
So, the battle is over.
As bright sunshine pours over the rain sodden field of conflict and the discarded standards of the Leave and Remain camps lie trampled into the puddles from last night’s downpour it is hard to ignore the sense that while the Brexiteers got more votes, none of us has won. The campaign has lifted the lid to reveal a side of the British psyche that is, at best, unedifying. I am left feeling that we have not simply shot ourselves in the foot, we have blown off both legs.
How have we come to this point? Is this a Peasants Revolt for our times? Too many are disenfranchised. Too many work long hours yet rely on benefits to survive. Too many feel the squeeze on resources, blaming immigration rather than poor planning. Too many feel they have nothing to lose. And what hope does the Government give them? None; only a future of more austerity while the schism between haves and have-nots continues to widen. Is it any wonder if this was the moment they seized the opportunity to rebel, to give Cameron and all the other ‘haves’ a bloody nose?
Does it really matter? Surely we’re a strong country and we’ll be even stronger on our own? A couple of years ago, studying Economics as a post-graduate, I spent a semester poring over the European Union gaining some insight into the value of tariff-free trade; of free-movement of people; of the way trade deals are struck between large trading blocs, not individual countries. I understand the considerable value of what we had – I have no idea of the value of what we might achieve. In this I am no more ignorant than anyone else – we are heading into an uncertain future.
We can think about the likely consequences. Within hours of the result international financial services companies were calling on the Government to delay starting negotiations so they had time to arrange their departure. Even before the vote Foreign Direct Investment into the UK was falling; we can expect that trend to accelerate. Will Multinationals continue to see the UK as a natural gateway to Europe?
We may not like immigration but, as anyone in financial services will be acutely aware, we’re facing an aging crisis. Each year 700,000 people turn 65, stop working and start living a life on benefits. In a decade we’ll be pleading for young people to make their lives here. What a sad irony that the demographic most reliant on a young, vital workforce was the one that most enthusiastically embraced Leave.
We can look forward to months of political uncertainty. It is right Cameron is going – he has been unashamedly cavalier with our futures and this dangerous farce has exposed a naive opportunism that ill-becomes a leader. Or an ex-Mayor for that matter.
Where does this leave client portfolios? In times of uncertainty there are two fundamental approaches - to avoid or to manage the risk. Avoiding would have meant moving client portfolios to cash over the referendum period, which may yet turn out to have been the better call. However, our approach has been and remains to manage risk by increasing diversification. Although predominately passive we have introduced some specific actively managed funds where they can provide exposure to non-correlating assets. We have a higher than usual exposure to overseas markets where the fall in the value of the pound should compensate for some of the market volatility. We have introduced a UK infrastructure fund that is likely to benefit from the financial stimulus that looks more certain if we are to lessen the depth of the forthcoming Brexit recession. We also introduced a long-dated Gilt fund as an ultimate insurance policy that looks like being our best-performing holding.
We took these positions at the beginning of the year to reflect what we perceived as higher global risks at a time when it appeared the referendum would be no more than a sideshow – none of those risks has gone away, the Brexit vote has simply amplified them. It is going to be a very difficult time ahead.
The referendum debate has shone a light on the way we make decisions. The cosmopolitan view was that it was all about the economy, stupid – people would vote with their wallets. In the event, other influences were at play.
In our July Masterclass we’ll be looking at the underlying cues and biases that impact our decisions in an introduction to Behavioural Economics. If you would like to come along you can find more details and book a place here