No. Here’s why:
- Your portfolio should already be globally diversified, or at least not concentrated in any one country. On a global scale, Brexit barely registers. That’s a bit sad for us Brits, but it is a practical truth. Living in the U.K., we obviously receive a disproportionate amount of news coverage on Brexit, which makes it sound like a huge issue. And for domestic British business, it is a huge issue. But if your portfolio is globally invested, then your weight in the U.K. will probably only be about 10%. Add an intentional domestic bias to that, and perhaps you have 20-30% invested in the U.K. Basically, your portfolio definitely shouldn’t be invested 100% in the U.K.
- The ‘Brexit barometer’ has been the pound sterling. That is, when Brexit news – good or bad – hits the headlines, it has generally been GBP that has reacted to the news, as opposed to the U.K. stock market. That’s important because a) it’s more likely the stock market that matters for your portfolio, and b) the relationship between a country’s currency, its economy and its stock market is far from one-dimensional. Depending on how international trade dynamics settle, a weaker pound might be good for the U.K.
- The U.K. stock market is itself a very international market, especially the large companies of the FTSE100. The U.K.’s financial system is one of the most important in the world, if not the most important in the world. The U.K.’s economy, however, is far less important. Given the U.K.’s colonial legacy and diplomatic status, which we won’t get into, disconnects like the one between the financial system and the economy are quite common. An example pertinent for your portfolio is the outsized portion of profits at FTSE100 companies that come from outside the U.K. That has two implications: a) profits denominated in currencies other than sterling then depend on the value of sterling when brought back to the U.K., and b) geopolitical, socio-political and other disruptions are often more important outside of Britain, when it comes to the impact on the U.K. stock market
- Your socio-political opinions don’t matter whatsoever for your portfolio. Leave your remainer grumblings at the dinner (party) table. You should not be making investment decisions based on your feelings about Brexit, or your feelings about anything, for that matter. Your To the pound authors voted remain, and we were disappointed for a few days after the result, but we didn’t let our emotions get in the way of our portfolios. We love talking about politics, and we could win awards for our socioeconomic ramblings. Politics is an interesting topic, but interesting and important are not the same thing. Politicising your portfolio is a fool’s game.
- And here’s the exciting one: the U.K. is a global leader in a number of important technological fields. Renewable energy and its associated infrastructure, computer chip technology, medical technology, and materials technology are but a few examples. The U.K. has many of the world’s leading universities, often making important scientific breakthroughs faster than the leading comparable US-based organisations. Like in the financial sector, the U.K. punches above its weight in technology, especially early-stage technology. Don’t give up on the U.K. just yet.
It’s easy to translate the relentless news feed about Brexit into a negative investment narrative, which makes it tempting to make changes to your portfolio as a result. But we think that’s an oversimplification. Don’t jump to conclusions about the impact of Brexit on your portfolio; there’s more to it than the headlines. Brexit has many important negative impacts on people and their families across Europe and the world, but it carries less importance in the investment world than it does in the real world. For your portfolio, that is a good thing.
We’d love to hear your thoughts; please use the comments section or send us an email.
To the pound 