The headlines have been consumed with Brexit now that Boris has joined the leave camp along with Michael Gove and nearly half the remaining Tory MPs. Our job is not to work out which is best for Britain but to see how to best position our portfolios so that we can benefit from the eventual outcome.
The best forecasting tool about whether we are going to exit or not can be found with the bookmakers. They currently predict about a 70% chance of the UK staying. So what would happen to our wealth if the bookmakers got it wrong? A report commissioned by Woodford Investment Management from Capital Economics (a well renowned economic forecasting company) came to the conclusion that the long term effects are pretty much the same either way. However, they did point out that in the short term sterling would weaken. If we look at the chart of sterling against the US Dollar, we can already see that this is occurring and sterling fell even further after Boris’s announcement:
A weaker sterling is very good news for our portfolios as it has the effect of increasing the value of our overseas investments. This can be seen over the last month where all the best performing funds have been the overseas ones. In addition the weakness in sterling helps our exporters as their goods can be sold cheaper overseas and also makes it easier for foreign companies to buy our business at a premium as the price falls in their own currency.
Therefore a Brexit could be extremely good for our wealth in the short term. Our portfolios already have a high exposure to overseas investments and have benefitted from a weak sterling. If we get a Brexit then they will continue to benefit. However, if as the bookies expect, we remain in Europe then sterling could rally and our overseas money may fall in value.
Currency is therefore the most important part to watch and from that we may decide to increase or decrease our exposure to overseas investments.