Trevor Greetham, head of multi asset at Royal London Asset Management, commented:
“Heightened Brexit uncertainty has pushed the cost of hedging portfolios against a drop in the pound to its highest level in almost two years (chart below). Time is running out with the UK due to leave the EU in March 2019 but all options are still plausible, from a chaotic No Deal exit, through leaving the EU under the Chequers Deal to remaining in the EU on current terms after a referendum on the final deal. Political risk is high and rising so it’s not surprising investors don’t know which way to jump.
“Currency markets don’t like uncertainty. We are modestly underweight sterling in our funds and have deepened that position as volatility has risen. We are likely to add back to the pound when volatility calms down once more.
“Brexit could go either way and the outcome will be very hard to call. We suggest investors with a low risk appetite invest primarily in sterling-denominated assets so they don’t have to worry too much about changes in the exchange rate. Investors with a higher risk appetite can hedge their bets to some extent by balancing domestic and overseas equities, which are likely to do better in a more disruptive scenario in which the pound declines, with commercial property, an asset class we’d expect to do better in a closer relationship with the EU.”
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About Royal London Asset Management (RLAM):
Established in 1988, Royal London Asset Management (RLAM) is one of the UK's leading fund management companies, providing investment management solutions to both wholesale and institutional clients such as not-for-profit organisations, local authorities and the insurance sector.
RLAM manages £117 billion of assets and employs 89 investment professionals. It invests in all major asset classes including UK and overseas equities, government bonds, investment grade and high yield corporate bonds, property and cash.
For professional clients only, not suitable for retail investors.
Issued November 2018 by Royal London Asset Management Limited, registered in England and Wales number 2244297; authorised and regulated by the Financial Conduct Authority. Registered Office: 55 Gracechurch Street, London, EC3V 0RL.
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