Brexit – Should We Worry?…

As the Brexit deadline day (29^th March 2019) looms ever closer, there is still little certainty as to what the outcome of the negotiations will be; will Theresa May be able to execute the perfect deal, or will she fall short and end up with a deal similar to her Chequers plan? Even the possibility of a no deal with the UK falling under WTO (World Trade Organisation) rules is still on the table.

All of the scenarios described above have a variety of consequences, both positive and negative, for the UK economy and financial markets. Given the complexity of the situation, we have produced our own Brexit infographic to help make sense of the various outcomes and what they could mean for the DB Wood Portfolios. It aims to simplify how the Investment Committee expect the 4 major asset classes; UK Equities, International Equities, Corporate Bonds & Government Bonds; to react to each outcome.  

The most influential factor in determining the reaction will be how the British Pound either appreciates or depreciates in response to either possible outcome. For example, in the case of a Hard Brexit, the Investment Committee expect the pound to depreciate against other major currencies i.e. the pound becomes cheaper. This would be a tailwind for international equities which would help offset the likely fall in UK equities due to the increased uncertainty of a “no deal”.

With this in mind, the Investment Committee have been conscious to find the right balance between all four of these asset classes to make sure the portfolios are robust, against the backdrop of potentially volatile markets.  

However, our central case is for a muddle-through, soft Brexit, which is likely to include a transition period beyond 29^th March 2019. This does not necessarily give us more certainty as to where we end up, and therefore we have positioned ourselves to be balanced to ensure the portfolios are robust irrespective. The following infographic aims to illustrate this…