Investing for Brexit

[SteMiS]

With A50 likely to be issued shortly and then, within a number of years, UK's exit from the EU and the single market confirmed, I'm musing how to take account of this in my investments.

Without getting into a mega discussion about the pros and cons of Brexit there seems to be 2 aspects. Firstly the volatility during the negotiations and secondly the scope for a step change once the outcome is known.

I have considered just exiting the market until the outcome is known. However my portfolio produces significant income and there would be costs of liquidating a wide spread of investments.

IF Brexit goes badly then I'm guessing the major casualty would be a big fall in sterling. Holding assets in or related to other currencies would be a hedge. Related to other currencies could mean gold or oil stocks but there are other factors to consider (not least commodity prices). Exporters would benefit although probably not those exporting to Europe. I think consumer stocks could take a pasting and maybe property/banks?

IF Brexit goes well then sterling should strengthen, although I'm not sure what 'good' is in this context other than an absence of bad, so the impact may not be as dramatic.

Any views (which aren't just reruns of pro/anti Brexit)?

[dspp]

Stemis,

I have the same conundrum, both personally and at work.

Listening to the pro-Brexit people about the FinServ sector they seem to think the UK will become uber-competitive without the Brussels shackles. If they are right then UK FinServ should soar. Personally I think it will be more complex than that, though I am an outsider looking in and they seem to be much more au fait with FinServ than I am. Personally I think the smaller FinServ players may struggle to absorb whatever changes come, whereas the bigger ones will be better placed. For that reason I am only in the bigger players.

Over in Mfg the devaluation of GBP has helped in the short term keep things on an even keel. But if it takes a 20% devaluation to achieve that then the longer term is very worrying. Mfg/Energy is the sector I work in so I see the complexities, and they are much more problematic than Brexiteers like to acknowledge, and I am desperately worried. For that reason my UK exposure is mostly FTSE100 as that way most of the underlying reality takes place outside the UK and outside of GBP. My exception is an oily punt that will not be much affected either way. Oh and the day job but that's another matter !

I am not in defence/aero sector (though I know it) and there I expect UK to get squeezed by Brexit. I see no good way to play that.

So basically I am trying to avoid downside rather than seeking upside. If you are seeking upside then I'm not as brave as you ......

regards, dspp

[BusyBumbleBee]

I have the same conundrum and have put some thoughts over in "safe haven portfolio" here viewtopic.php?f=8&t=3816

[ermintrade]

Yes, it's a real problem. I think Brexit poses very significant risks to the UK economy and to companies focussed on the domestic market. My decision is to largely invest in overseas markets (India, EMs), UK stocks with significant overseas operations and earnings (eg Prudential, Greencore, IQE), commodities, infrastructure, European and UK real estate (eg CLS holdings). I also hold assets relatively uncorrelated with stocks (eg Burford Capital, Catco reinsurance). And 10% of my portfolio is gold, to act as insurance against global panic.
I shall maintain this stance until a final Brexit deal materialises. I hope that this diversification strategy insulates me from Brexit turbulence to a large extent.
Regards
ermintrade

[richfool]

The stance I have taken is (as outlined on BBB's Safe Haven Portfolio thread), - to hold a mix of larger UK stocks with an emphasis on global income, plus a large portfolio of well diversified IT's.

Currently, I am staying fairly fully invested, maintaining a global diversity through IT's, and hold some "Flexible" sector IT's including: Personal Assets, Capital Gearing Trust (CGT) and HAST Henderson Alternative Strategies (HAST), plus I hold BRWM and BRCI for some commodity and gold exposure, and SLI for property exposure. For the time being I prefer US equity exposure to European exposure (until the Brexit implications become clearer), but that in the main is left to the managers of the Global G&I IT's that I hold.

[saechunu]

The view I've formed over the years is that many people's attempts at macro-managing a portfolio produce a result that's either no better - and frequently worse - than if they'd left well alone.

The more complex a situation, the more difficult it is to identify a set of plausible scenarios and attach realistic probabilities to each of them. Then, you also need to accurately forecast how people - and thus markets - will behave in each of those scenarios in order to gauge the future impact upon prices. That's a great deal more difficult than perhaps assumed, not least because it is influenced by everyone else's 'positioning' prior to the event, which can be difficult to decipher. Accomplishing all this in an effective manner is difficult meaning few will be capable of it.

Instead, what often happens is that people position heavily for a specific outcome - that outcome being alighted upon from the many possible outcomes largely as a result of their own biases, hopes and fears - and then either do very well if their forecast and positioning are right or badly if they're wrong. The combination of the trading costs suffered with all this portfolio repositioning, and the negative impact of investment decisions driven by emotions (which often cause people to do the opposite of what they should), accounts for why few people do well at macro-management and many do poorly.

I generally take a different approach. Instead of attempting to accurately predict what will happen and when, and then tactically position my portfolio for that specific scenario, I prefer to maintain a portfolio that should do OK across a range of economic and market circumstances. The goal is to never be totally wrong, with the price paid for that of never being totally right either - but with the benefit of a portfolio exhibiting resilience across a range of outcomes.

This 'all weather' approach makes for a fairly low-stress way of investing, helping eliminate emotions, which in turn can improve decision making. In effect, it's reserving active decision making for those few occasions where identifying the right choice through investment's fog of war becomes (or appears to become) clear cut and high probability, and where the positive portfolio implications of that correct choice become very large.