The Likely Impact
You will no doubt be following the referendum debate and the now narrowing polls with interest. Wherever your sympathies lie, it will be likely you may have some concern about what this means for your portfolio.
As I’m sure you are aware, financial markets hate uncertainty, and that is exactly what we have today (and will certainly have more of if the outcome is a victory for the ‘Yes’ camp). As a result, we are likely to see some volatility in UK bond, equity and currency markets. But this needs to be placed in perspective.
In a global context the ‘Yes’ or ‘No’ vote pales into insignificance relative to Russia’s covert war in Ukraine, or the threat of Islamic State in the Middle East, for example. It is simply evidence of a civilised society executing its democratic process in a peaceful manner. It is something – in the greater scheme of things – to be proud of, whichever way it goes.
The Scottish vote is close to our hearts, but a side story for the rest of the World. The World is and always will be an uncertain place and markets will respond to new any information, whether the news is good or bad.
For further insight contact any member of our team at Loch Fyne Financial.
Keep Calm and Carry On
In terms of your investment portfolio, it is well-diversified globally across your equity holdings, mitigating any shorter-term volatility in the UK equity market. In addition, the non-GBP currency exposure that comes with your non-UK equity allocation provides a hedge against any fall in the value of sterling against international currencies that may occur.
On the bond side, you allocation is predominantly in high quality, short-dated global bonds thereby mitigating the risk of any rise in UK yields caused by uncertainty as a consequence of a ‘Yes’ vote. The index linked gilts are there to protect against long-term unanticipated inflation, remember that this still remains a risk whether Scotland remains part of the UK or not.
The calls we have received from concerned clients have in fact been centred around banking issues rather than their portfolios. The Times today mentions banks receiving rising numbers of enquiries from customers regarding the security of their deposits in the event of a ‘Yes’ vote. Lloyd’s (which includes Bank of Scotland) and RBS have now both confirmed that they have made contingency plans in order to establish new legal entities in England, however each are of the view that there would be no immediate changes or issues which would affect their business or their customers, as the period between the referendum and implementation of separation (should that happen) allows time for the banks and their customers to take any necessary action.
In summary, generally the temptation is to do something, but usually – and we believe it to be so in this instance – the best thing to do is regarding your portfolio is to believe in your long-term, globally diversified structure, and ride out the uncertainty. ‘This too shall pass’ – as the legendary US investor Jack Bogle would say. There will be bigger global storms than this in the future, although at the moment these are the grey clouds that we can see approaching from the horizon.
In terms of the detail about what happens to the currency, pensions, ISAs etc., on both sides of the border, let us just wait and see. We will keep vigilant on your behalf and keep you posted, but for the meantime keep calm and stick with the programme.