On June 23rd, 51.9 percent of U.K. voters opted to “Leave” the European Union, an outcome that surprised market participants. United Church Fund’s (UCF) Chief Investment Strategist, David Klassen shared his thoughts on how this affects UCF’s investment strategy.
On June 23rd, 51.9 percent of U.K. voters opted to “Leave” the European Union, an outcome that surprised market participants. Leading up to the referendum, the consensus view was that voters would choose to “Remain”. In fact, global equity markets were up around 4 percent quarter-to-date prior to the vote.
It will take 24-36 months for the U.K. to leave the European Union. However, over the short and perhaps even intermediate term, the surprise exit referendum will result in market volatility. The greatest immediate impact following Brexit will be in global equities. Markets will be concerned with the impact of protectionist responses on global growth, economies, trade, labor mobility and politics. Esteemed institutions such as the International Monetary Fund (IMF), World Bank, Bank of England, and World Trade Organization have weighed in on the impact of a Brexit.
Given global events – central bank activity and upcoming elections – we positioned our balanced funds with a neutral allocation to equities. Our fixed income team has a fairly meaningful sensitivity to the benefits of lower interest rates, which over the short term has come to pass. Finally, our exposure to direct investments in U.K. securities is below that of global indices.
We believe policy responses around the world will mitigate Brexit’s impact. Our balanced approach to asset allocation, combined with the sharp analytical tools of our fund managers, will aid UCF in systematically identifying the current and future opportunities, and risks presented by this news. Most importantly, we re-affirm that the primary objective of our investment stewardship for our clients is to remain flexible and focused on investing for long term financial benefit.
For more information on Brexit and the implications on politic, economy and global market, please read the following two articles written by two of our investment managers: Western Asset Management and State Street Global Advisors.
The U.K. Has Voted to Leave the EU, Andrew J. Belshaw, Head of Investment Management of Western Asset Management, London
The Brexit Vote and Market Impacts, Richard F. Lacaille, Global Chief Investment Officer, State Street Global Advisors
We will continue to keep you informed as conditions warrant.