We haven’t yet felt the real impact of the vote to leave the EU, having so far felt only early tremors but there are many indications that it will not be an amicable divorce. The elections in France and Germany next year might alter how the ending or rewriting of the economic relationship unfolds, but we don’t know if that will be in a good or a bad way.
One of the immediate impacts of Brexit has been the fluctuating exchange rate, with fears over a hard Brexit causing it to plummet again this month to its lowest level in 30 years. While there will be many winners in this game, the fact is a falling pound isn’t always a benefit even where it’s expected to be. The CBI’s industrial trends survey revealed this week that weaker sterling has had a negative effect for far more UK exporting manufacturing companies than it’s had a positive effect, despite improved export demand and competitiveness. That’s probably because the drop in value also feeds through to costs. Also playing on manufacturers’ minds are worries about sourcing skilled labour and accessing the EU on a barrier-free basis. The collapse this week of trade talks between Canada and the EU, after seven years of negotiations, is a signal of the potential difficulties ahead. Coming offf the QE medicine will bring its own complications.
Meanwhile, emerging markets have begun to look more like normal developed markets than developed markets do themselves and their performance has improved significantly.
The point is we still have to go through QE cold turkey and Brexit, and whether you expect major or minor upheaval as a result, most investors will be casting a critical eye over their portfolios.
Putting together a strategy may no longer be as simple as choosing a couple of uncorrelated assets and keeping an eye on the business cycle. Psigma points out that the traditional 60/40 equity/bond mix has yielded a return of nearly 8.5 per cent a year for the last 35 years but warns this can’t go on for ever: “Trees don’t grow to the sky”.
You can tilt your portfolio towards the assets you think will perform strongly, and/or you can make sure you are adequately diversified. One way of achieving this is through investment trusts. They have stood the test of time and they put a range of assets, as shown in our special report this week, within easy reach of all investors. Whether you want the insurance of gold, Japan, China, commodities, Macau property, European property, private equity, digital disrupters, small and micro caps, inflation proof sectors or companies that will gain from a weak pound – you name it, they have it.
