Diversification in all weathers
Welcome to my eighth bi-monthly commentary giving you a real insight to the daily life of a financial planner and the issues affecting clients.
It has been almost a month since we woke on Friday 24th June to the news that the country had spoken in a very loud voice and voted to leave the European Union.
The resulting political and financial turmoil could fill my blog for the next six months and many of us will try (yet fail) to recognise a period in modern history when there has been as much political change in such a short space of time.
When I woke on Friday 24th June my first reaction was "this is going to be a horrible day in the markets" and for the first couple of hours it was.
Calls, emails and texts from clients and professional connections came flooding in reacting to the result.
Some were concerned but many others felt a relief that the vote to leave had been successful.
Almost all of my clients across the country, that I spoke to in the two month period before the Referendum, had told me they were going to vote to leave. Therefore, perhaps then the result was not entirely surprising.
Since then, the FTSE 100 has reached levels not seen for almost 12 months and although the FTSE 250 hasn't fared quite so well, the overall investment sentiment (especially for companies who earn the majority of their profit from overseas) has been positive.
Even on Friday 24th, the market recovered in the afternoon after the realism of the result was confirmed.
Since the Referendum we have seen limitations on commercial property fund withdrawals, as well as penalties imposed. In some cases, the withdrawal facility has been withdrawn altogether.
Remember, this is commercial property, not residential, and the simple fact remains that if investors are deciding to withdraw money from a property fund at such a rate, that assets need to be sold. This does not put the seller in a favourable market position. If anything has to be sold quickly, the price it realises will not be highest that it could have been had the sale not been forced.
Many clients that I have spoken to are more concerned with falling values of residential property and it becoming harder to attract tenants. With a less migrant population likely in the future and falling domestic consumer confidence post Referendum, this has led to predictions of a fall in value of between 5% and 10%.
Others argue that a weakening pound means that overseas property investors will see their money stretch further, and adding value in the UK property market.
What is clear is that we are now in a period of uncertainty. The rising value of the FTSE 100 should not be automatically seen as an indication that everything is well in the world, with the majority of companies falling within the drug and mining sectors.
As always our belief remains that investments should always be well diversified, and our use of multi manager, multi asset funds has served our clients well. This was the case before the Referendum, after the Referendum and it will remain so for the future.
Ian Howell DipFA MIFS