Alex Chappell

18th April, 2019

DB News

Brexit Update – No change doesn’t mean no action…

What do 29th March, 12th April, and 31st October all have in common…? They are all dates where we agreed to leave the European Union.

With Parliament still unable to provide a majority behind any one of the proposed exit plans, this time last week the EU settled on a second extension, giving us another six months to try and break the Brexit impasse. With cross-party talks ongoing, there is of course the chance of a swift resolution, but given the depth of the debate so far, it would be a surprise. The proverbial ‘can’ has therefore been kicked down the road a little further, causing us to reassess our short-term outlook and tweak the positioning of our portfolios.

To date we have been of the view that these little Islands are in better shape economically than investment markets reflect, and whilst we have not changed our view dramatically, we feel the extension will defer the progress of some of our UK opportunities, and we have adjusted our asset allocation accordingly. The most likely outcome to Brexit in the short-term is that the uncertainty continues, restricting the pick-up in economic activity that we forecast will occur, once certainty is restored.

It is no bad thing that we are now less positive on the UK in the short term, as for some time we have also felt like there are great opportunities overseas, though we have to be careful with currency risk. Our objective remains to ensure our clients are not exposed to losses whatever the Brexit result. So, with the can moving down the road, we have reduced our exposure to UK domestic equities, adding to areas we favour overseas.

This type of activity demonstrates the way we approach our investment opportunity set. For one, we see risk control as paramount, and remain focussed on protecting our clients’ money, though we will take advantage of opportunities where we deem it prudent. Our asset allocation is dynamic by nature, and frequently evolves to reflect what we consider the best risk-reward opportunities available to us. Moreover, we are not afraid to quickly adjust as we receive new information. We will doubtless make further changes when the Brexit can is finally put to bed.

Finally, it is important to remember that we invest globally, and whilst Brexit is an important event, it is certainly not the only one. Our portfolios have started 2019 strongly after a challenging 2018, and we are fully focussed on protecting this return, alongside developing new opportunities. We are excited about our investments into renewable energy, infrastructure and sustainable social housing, which form part of our alternative themes. In the meantime our search for good investment opportunities goes on, and we look forward to seeing the benefits of this over the months and years ahead, irrespective of where the can eventually lands.