Navigating Brexit

December 7, 2018

The next few months promise a period of risk but also opportunity, says Vinay Bedi, investment consultant at Vertem

Sigmund Freud said: “One day, in retrospect, the years of struggle will strike you as the most beautiful”.

Most readers and indeed investors will consider, joking aside, that Freud’s statement cannot in any way be associated with post-Brexit referendum Britain. The Withdrawal Agreement, wherever it may be at the time of reading, has provided little clarity and regardless of the final, long-term outcome, investors might consider Freud’s view to be an interesting distraction, at best.

Naturally, those with money in the markets will hope that the playing field will level out in due course and the chance to reduce portfolio risk and improve returns will increase once the position is clarified and we finally know where we are going. Of course, by then, it may well be too late and for now, they feel trapped in the hands of politicians and luck.

But let’s look at it purely from a sensible ‘where would you put your money’ perspective and we may find that Freud could have been on to something – albeit unwittingly.

In an ideal world, an investor would expect their portfolio to be clearly defined. In this context, I mean that each individual holding has been seriously stress tested and assessed for the risks attached to it in the case of both hard or soft Brexits.

The investor would also expect that their investment manager has ascertained complete clarity of what holdings will offer the best opportunity for taking positive advantage of the various Brexit scenarios. Be in no doubt, Brexit will create opportunities for investors and this is where Freud’s statement could be relevant. But, to take advantage, portfolio management and flexibility is critical.

Vertem Stockbrokers has tackled the subject of pre- and post-Brexit head on. Not only has the analytical team in Newcastle been identifying the individual risks of each holding within each portfolio, it has also been identifying those holdings that could demonstrate above average upside potential in whatever Brexit scenario emerges.

To do this, Vertem has created its own, unique “Vertem Brexit Scale”. The assessment of each holding, both actual and prospective, inputs a very wide range of Brexit-related variables into an algorithm. Each stock or bond or fund is measured on a risk scale dependent on the type of Brexit we end up with. As the various Brexit outcomes are factored in then the upside potential for many investments also becomes apparent which then enables rapid portfolio adjustment, if required, as we start to see some clarity.

The political turmoil that followed the release of the Withdrawal Agreement proved a very good test for the Vertem Brexit Scale. Stocks moved as the Scale suggested and the indications were that visibility is much greater, decision making can be almost instant and risks subsequently diminished.

Investors have every right to expect proactive fund management, especially at a time like this, and the Vertem Brexit Scale allows for this.

Freud was not, of course, referring to anything like the situation we now find ourselves in. But, occasionally, it’s wise not to laugh at seemingly wild statements. This current Brexit impasse and uncertainty will create opportunities for those with the foresight to prepare, identify and then take advantage, while many will look back and wonder, ‘if only…’


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