Keeping a focus on the important issues will help investors navigate these turbulent waters. As such, and as suggested in previous columns, Brexit is nothing more than a dog barking as the elephants quietly walk by. Much bigger challenges should concern investors, including the failure of the international community to address them.
The dog barking
According to a small section of the media, Brexit is to blame for most of our present-day 'ills' - including a shortage of strawberries at Wimbledon this year!
The facts are straightforward: Brexit means Brexit. Article 50 will be triggered in the Spring. Trade and immigration will not be linked when negotiating our exit. The UK will introduce a fairer immigration system, which no longer discriminates against the rest of the world outside the EU.
If access to the single market cannot be achieved, then World Trade Organisation (WTO) rules and tariffs 'hold no fear'. The 170+ countries outside the EU conduct their trade on such a basis - some have trade deals, some not. There is no reason why the fifth-largest economy in the world cannot thrive likewise.
The EU cannot impose punitive tariffs - the WTO only allows tariffs averaging 3-5 per cent under the 'most favoured nation status' rules. Meanwhile, trade 'scoping' talks progress with many countries outside the EU - the term 'negotiations' flout EU rules.
Yet the scaremongering continues. Many are lamenting the pound's weakness despite nearly every major economy trying to weaken their currency to help stimulate growth and raise inflation - this is, after all, a key side-effect of quantitative easing (QE). It is just that the UK is leading the pack.
Sterling's weakness is long overdue as part of a policy to 'rebalance' the economy. A dominant financial sector and strong pound has squeezed our manufacturing competitiveness, investment and productivity. British factories saw their best month in three years in September, as exports have surged - and the stock market has taken note.
Meanwhile, many companies have said Brexit will not affect their investment in the UK - Nissan being the latest. Furthermore, when finance and investment decisions are taken, business costs are relative - the UK's much lower corporation tax rates and more flexible labour market being deciding factors.
There will be more scare stories. But much bigger global challenges present themselves.
Some of the elephants walking by
Perhaps the most pressing is policymakers' inability to foster faster economic growth. An unusual recession caused by high debt, together with a financial crisis, was always going to present unique challenges. High debt makes for sluggish growth - and low interest rates.
And as policymakers have become increasingly frustrated, measures once considered radical - persistently low interest rates, QE, negative interest rates - have become the norm. This is distorting the price of certain assets. Governments may now be tempted to introduce more direct 'helicopter cash' initiatives.
The bond market may be close to a tipping point - fearing the outlook for inflation. Having long profited from being overweight bonds over the years, during August and September the portfolios took profits and went underweight respective benchmarks. A number of other asset types, also less correlated to equities, offer both diversification and better yield.
Meanwhile, our foreign policymaking apparatus lacks investment, expertise and credibility. Our foolish interventions in Iraq (2003), Helmand (2006), Libya (2011) and most recently Syria shows the West is poorly sighted as to events and consequences on the ground. Potentially hostile nation-states remain the greater threat.
There are also growing socio-economic challenges. Some are linked to the forecast growth in the world's population to 9bn people by 2050, its changing distribution with particular relevance to Africa, urbanisation, and the consequent rise in migration and strain on natural resources - 1bn people, often living in corrupt and volatile regions, do not have sufficient potable water.
Growing income inequality will further create challenges, even in the West. The real, inflation-adjusted incomes of the bottom 90 per cent of US earners outpaced those of the top 10 per cent from 1917 to 1972. However, since 1972 the real incomes of this 90 per cent have not just lagged behind the top 10 per cent, but have actually fallen. Trump has been pushing on an open door.
Globalisation, the dominant theme of the past 30 or so years, has massively enriched the few at the expense of the many - who have experienced job insecurity and declining living standards. This potentially has wide repercussions, including the call for 'protectionism'. A fairer distribution of wealth is not only right, but necessary.
And this is all happening at a time when, in large measure, the international community is failing to produce the co-ordinated responses on the scale needed to meet many of these challenges - including poverty, organised crime, conflict, disease, hunger and inequalities.
A recent sorry example has been the huge underfunding of the Syrian refugee camps - despite pleas from the UN. The consequent cutting of the food coupon during the summer of 2013 directly led to the exodus - as families, already living in poor conditions, understandably sought help elsewhere.
If the international community is to best meet future challenges, economic and political leaders must better embrace foresight and flexibility of response - and commit the necessary resource to achieve both. We need to remember elephants can cause the greater damage.
Different responses
One could be tempted to be negative. Different challenges will require different responses. Investors must focus on companies that create wealth and add value, while ensuring portfolios are adequately diversified.
Politicians should shun organisations such as the EU which lack transparency (including audited accounts) and democratic accountability, which pursue economic policies resulting in high unemployment, and which lack foresight and thereby blunder from one error to another.
Portfolio changes
During October the Growth portfolio sold its allotted Ecofin Realisation NPV (EFR) shares following the reconstruction of Ecofin Water & Power Opportunities (ECWO). From what investors convey, some brokers have not served their clients well - please refer to www.johnbaronportfolios.co.uk for more details.
With the proceeds and allotted cash from the reconstruction, the Growth portfolio's existing holding of Golden Prospect Precious Metals (GPM) was topped up. Meanwhile, Bluefield Solar Income Fund (BSIF) was introduced, having been introduced to the Income portfolio during August.
To help fund these purchases, north Atlantic Smaller Companies (NAS) was sold because it has done well in part because of its dollar exposure and because the discount has narrowed since purchase. NAS remains in the website's Thematic portfolio.
There were no changes to the Income portfolio during October.
John Baron waives his fee for this column in lieu of donations by Investors Chronicle to charities of his choice. As these are live portfolios, he has interests in all of the investments mentioned
