As we continue to ebb ever closer to the Brexit divorce date the overwhelming sentiment regarding any potential outcome continues to be uncertainty. This holds true both within the expatriate community but also within the financial markets. Not only the finer details but for the most part the larger details of the separation are unclear leaving most people, firms, industries etc to plan for multiple outcomes as opposed to focussing their efforts in the most efficient way.
Investors in particular will have felt the effects of this uncertainty more than most with market volatility increasing the closer to the divorce date we get. The performance of some of the main indices in the developed world reflects this as shown below:-
• The FTSE100 dropped by more than 16% between May and December of last year
• The Euro Stoxx 50 dropped by 20% between January and December of last year
• The S&P 500 dropped by more than 19% in the last 4 months of 2018
• The DAX dropped by more than 23% between January and December last year
Ultimately the price of anything is dictated by the laws of supply and demand but when it comes to the financial markets the level of demand for any given equity, bond, commodity etc is massively influenced by the collective mindset of investors. This mindset is known as market sentiment and it is this very sentiment that moves the markets up and down. Linking this back to Brexit, the uncertainty of whether a hard or soft deal will be reached or whether Brexit will even take place at all is affecting the markets in the ways outlined above. Of course Trump’s trade issues with China amongst many other geopolitical factors are also contributing.
One important thing to remember however is the famous investment adage “buy low, sell high”. Inexperienced investors will often look at markets rising higher and higher and be inclined to enter an already overbought market. Most if not all of the best investors in the world enter markets when they see maximum opportunity for growth as eloquently outlined in the following quote from Warren Buffet (one of the most successful investors of all time) when describing his investment strategy:-
“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
In light of the market losses incurred throughout 2018 many current and potential investors are asking ‘what is the best way to manage or establish an investment portfolio in such turbulent times?’.
The average expatriate investor tends to have a ‘balanced’ attitude to risk and so should hold an investment portfolio that reflects this balanced risk profile. For more information on the basics of investing please read one of my previous articles:-
One of the main features of a ‘balanced’ portfolio is diversification. This diversification should apply not only to the underlying equities but also to the asset classes, the industries and the geographical location of the individual assets. For this reason, at times such as these the use of actively managed funds as opposed to index trackers can be considered a very effective strategy. An actively managed fund is essentially one that is constantly changing and adapting its underlying composite of individual holdings to reflect market conditions. This ‘management’ of the individual holdings within the fund is done so in accordance with the judgement of a team of analysts and a fund manager. The facility to constantly monitor and alter the individual holdings of the fund in this way means that a more adventurous composite can be utilised during strong market conditions and then conversely a more defensive composite can be utilised should the fund manager(s) feel it more appropriate. To put it simply, during overly volatile and less than optimal market conditions the fund can focus on capital preservation and then switch to a more growth oriented profile when the inevitable market bounce back occurs. The ethos behind this investment style is to allow investors to defend and preserve their capitol during market downturns but ultimately remain in the markets positioned to benefit from the market bounce back as and when it happens.
If you are currently invested in the markets and would like to have a second opinion of your portfolio or alternatively if you are looking for advice regarding the establishment of an investment portfolio then please feel free to contact me.
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