How to Brexit-proof your investments

The polling day for the referendum in the UK as to whether to leave the European Union, is now fast approaching, the deadline to register to vote has been extended due to the volume of people wanting to cast their vote — which can only be a good thing, given the usual poor level of interest in other elections.

Both sides of the argument are now reaching fever pitch, and while there haven’t been any public spats yet, I fear it may only be a matter of time before something erupts. Looking at the bigger picture, it is a concern how the country is going to be governed after the referendum, given how much division there appears to be in the ruling party. The Prime Minister will have a tough job bringing the party back together, and focusing on what is arguably a far more important issue, managing the country.

Coming back to the current issue, I will look at some of the factors that investors should consider to ‘Brexit-proof’ their portfolios.

It has been reported that British banks and the Bank of England are busy preparing contingency plans in the event of Britain leaving the EU following the referendum on 23 June. The vote is currently looking incredibly close, and as such, investors should now be considering how they can Brexit-proof their portfolio to mitigate the effects of a fall in the value of UK assets should the Leave campaign triumph.

Large outflows

We have seen that the referendum and the consequent campaigning has already created considerable uncertainty, with many companies in the private sector shelving or postponing investment due to the forthcoming vote. This uncertainty and volatility can be expected to intensify if Britain decides to leaves the EU. Indeed the latest news shows large outflows of cash leaving the UK, as investors move out of the UK and into other currencies and locations that they believe will be less affected by a possible leave vote.

If the UK was to leave, almost certainly Sterling, UK equities and government bonds will come under further pressure as a result. Investors can take precautions against the potentially significant adverse effects of Brexit on UK assets by increasing their exposure to overseas investments.

It could be a timely decision to rebalance portfolios in favour of international stocks, bonds and perhaps property. Indeed, many investors should be considering a rebalance anyway, regardless of Brexit. Investing across geographical regions is one of the fundamentals of a well-diversified portfolio — and those with a well-diversified portfolio are best-placed to mitigate risk in times of market turbulence and best-placed to take advantage of the opportunities.

Portfolio risk

It is a myth that investing internationally is riskier. Indeed, the greater diversification that is secured by going global, the greater the reduction of overall portfolio risk. It is also a misconception that international investment options are exclusively the domain of sophisticated investors. This is not true. There are many well-managed retail funds that offer global stock market exposure, using a wide variety of approaches.

As is always the case when looking into the future, the predicted outcome could be completely different to the one that the so-called experts have suggested will happen, but if your portfolio is well diversified, regularly reviewed, and you have a medium to long term outlook, any short term effects of the vote, whether in or out, will be minimised, and indeed could be seen as an opportunity.

Therefore as with all areas of financial planning, this important subject needs to be studied to make sure you are aware of how it could affect you, if at all, and that you have taken appropriate advice.

James Thomas is the Managing Partner at deVere Acuma