Following on from our Response to the Brexit vote news article last Friday, here’s an overview of how things have panned out in the days since.
While volatility has reduced at the margin, high levels of uncertainty remain – particularly in the UK. In light of this, we have implemented a number of investment decisions both preceding and following the vote.
Prior to the vote occurring we’d reduced our weight to UK equities, recognising that potential market reaction seemed skewed; limited upside if the remain vote won but a significant selloff if the leave vote came out on top.
As global markets scrambled to reset on Friday, prices moved to levels where we again saw value in trading. To be clear, this short-term trading acts in support of our broader investment strategy to deliver improved risk-adjusted returns on behalf of our members.
Rather than the investment banks providing liquidity and being rewarded for it, this approach means that funds like QSuper become more natural providers of liquidity, to the benefit of members.
Going forward we cannot be sure what will occur. There is some chance that negotiations, uncertainty and other implications of Brexit could be extremely negative for markets. This could signal the unravelling of the Eurozone or see a fragile global economy fall into recession.
On the other hand it could be that the issues revealed by Brexit are relatively well known and result in minimum change to the global economy or markets. Either way, we’re confident that our diversified portfolio is robust to this range of outcomes.
We will continue to monitor market risks and pricing, and seek to manage these risks and add value when risk and pricing does not seem aligned.
More updates will be provided as they come to hand. In the meantime, for further details on our response to Brexit, read our Brexit investment strategy analysis series of blog articles addressing our strategic setting, our tactical response, and the daily risk management activities undertaken to address current market volatility.