Brexit: Canvassing the views of our fund managers

Back to results
A conference about the impact of Brexit

On receiving the news about Britain’s exit of the European Union, equity market and sterling volatility became elevated.  Markets fell sharply the day after the vote, before recovering to pre-vote levels by early the following week.  Sterling slipped towards $1.27 and has now recovered to $1.32 on July 14.  It will be different again when you read this piece.

With the dust yet to settle following the vote, Aegon has been hosting a series of investment seminars with some of our fund managers, seeking their market perspectives post 23 June.

Nick Dixon, Aegon Investment Director 

Nick Dixon speaking at Brexit conference

“One of my key concerns is the potential for “knee-jerk withdrawals” in response to market uncertainty, and the risk that these could lock in sharp falls experienced by markets immediately after the vote.

For pension savers, what matters is the value of their savings at the point they need to start taking income. Although equities (shares) have been volatile in recent days, they still offer superior long-term growth potential than cash or gilts for those who are prepared to weather the ups and downs.

Those already taking an income from their savings will be more severely impacted by market falls – which is why many still tend to purchase a guaranteed income to cover essential spending when they reach retirement.”

Marcus Brookes, Schroders, Head of Multi-Manager funds

Gold could be quite interesting, up 5% as sterling has fallen, and i can see us adding to some holdings in those areas - quote from Marcus Brookes

“The UK has voted to leave the EU, which was a bit of a shock to financial markets. We had just spent the last week or so seeing a very nice rally in risk assets - particularly in Europe and the UK, and in financials - as the markets became quite convinced that it was going to be a vote to remain. So the result was a shock.

Foreign markets likely to be less impacted by Brexit

Now the classic sell-off has been observed - basically all the stuff that had just gone up is now going down quite hard. But we have also seen this contagion affect foreign markets, which on the face of it don’t really look like they should be impacted by Brexit.

I am thinking particularly about Japan. Japan was down around 7.5% immediately post-Brexit and it is not obvious to me why Japan would be affected, so we are looking to add to that sort of area.  Indeed the Nikkei has subsequently regained its pre-Brexit value in Yen terms and is more than 10% up in sterling terms.

Another area we like is emerging market equities, something we have spoken about in the past. These are quite cheap, but there is a little bit of weakness in those markets and, again, I don’t think that is something which should be impacted by Brexit. So, emerging market equities look quite interesting.

Bonds look expensive, gold may be an opportunity

The area that everyone seems to have flown to has been high quality bonds, which to our minds were already pretty expensive, so we are staying away from there. But gold could be quite interesting, up 5% as sterling has fallen, and I can see us adding to some holdings in those areas.” (Source: Schroders(Opens new window))

Chris Burvill, Henderson, Director of UK Equities

When you get seismic events like this, the weight of pessimism tends to be wrong - Quote from Chris Burvill

“Some areas of the portfolio have benefited from the decision. Gilts and US Treasuries have firmed, while groups with predominantly international earnings, such as oils and pharmaceuticals have actually seen their share prices rise. Important holdings for us such as AstraZeneca, Smith & Nephew, Vodafone and Pearson have participated in this upward move. These, however, will have been offset by falls in the wider market. The Cautious fund retains no geared or derivative exposure to markets, no alternative assets and no direct property exposure. Our significant weightings in index-linked securities should also provide some protection from any inflationary effects from sterling’s fall.

It is going to be some time before we can make a clear assessment of what the longer-term effects of a ‘Leave’ vote will be. The political ramifications are still being played out as we write, and at this stage it would be wrong to rule out further developments which could affect the final outcome. That said it is impossible to cast these events in anything but a negative light. Domestic companies may be hit by higher input costs and lower consumer demand, while exporters will face higher raw materials costs and less certain overseas markets. New legislation, new regulations and new specifications will all prove hurdles to be crossed in the years ahead.

But there are positives that are worth bearing in mind. Most obviously, markets move quickly to discount the perceived risks, and market falls in the first two days post-Brexit left many stocks looking both cheap and oversold. Sterling’s fall should be a net benefit for investors, as should any further fall in interest rates. Monetary policy should remain supportive and the European Central Bank’s bond buying programme might well be extended. Even a rise in inflation, providing it is short term, might be regarded as a helpful development. “ (Source:Hendersons(Opens new window))

Alex Walker, Kames Manager of the Property Income fund

Whilst some volatility is to be expected within the investment market over the next few months, it's important to highlight that the market is in a substantially different place compared to 2007/08 - Quote from Alex Walker

“At this stage it’s very difficult to estimate actual impacts on property values, so we have to use best judgement. Communication is ongoing between fund managers and valuers to ensure fair-value pricing for existing investors. As yet, however, there has been very limited transactional activity to quantify the impact on the market.  We do expect negative short-term capital fluctuations, although income returns are anticipated to remain strong.

Whilst some volatility is to be expected within the investment market over the next few months, it’s important to highlight that the market is in a substantially different place compared to 2007/08.  Rental levels in many markets have been rebased from the highs seen eight years ago and the debt market is in substantially better shape (due to lower interest rates, more debt providers, lower LTV ratios).   For these reasons, we are firmly of the view that we are not about to experience a shock of the level of the Lehman Brothers collapse in 2008.”

Find out more...

Watch our webinar(Opens new window) to hear Steven Cameron, Aegon's Pension Director, discuss the impact of the vote to leave the European Union. 

Nick Dixon at Brexit conference
Nick Dixon

Nick Dixon

Investment Director