Brexit questions answered

To help you understand the impact of Brexit, we have prepared answers to some of the most pertinent questions you may have regarding your investments and the preparations we have made as a business.

This page will be updated as and when we have clarity on if there is a deal made with the European Union or if we are to leave with no deal.

Most importantly, we’re pleased to say that Brexit - whatever the final outcome - will have minimal impact on our existing operations, and we will be able to continue to manage your investments.
It’s possible that there may be some uncertainty in the economy and markets, but it’s important to remember that all investments can go up and down in value over time. The basic principles of long-term investing remain the same – short-term falls do not necessarily impact on long-term goals.
It may take time for all implications to become clear and some things may change. Our focus is on supporting advisers and customers. We will keep you informed of any changes here and contact you directly if required.

Your investment Q&As

Since the 2016 referendum the value of the pound has been somewhat volatile, reflecting the varying degrees of confidence that investors have had in the currency, given the various potential Brexit outcomes.

After an initial fall from $1.50 to below $1.30 in the aftermath of the referendum, sterling reached a post referendum high of $1.43 in April 2018, when it seemed as though the Bank of England might raise interest rates. In 2019, sterling reached a trough of just below $1.20 in July 2019, following rhetoric from Prime Minister Boris Johnson about the increased likelihood of the UK leaving the EU without a deal. However, the victory of the Conservative party in the UK general election on 12 December 2019 pushed the currency above $1.35, its highest level since May 2018, as a 31 January 2020 Brexit became a certainty.

However, the currency is affected by more than just the Brexit outcome, as demonstrated by the consequences of the global coronavirus pandemic. During the coronavirus-induced market sell-off in March 2020, sterling reached lows of $1.14. This was even lower than the levels reached in the aftermath of the 2016 EU referendum. But as seen in the aftermath of the referendum, sterling has since recovered and reached a high of $1.35 in early December 2020.

Overall, the depreciation of sterling versus most major currencies over the past four-and-a-bit years, has had the effect of increasing the sterling value of assets denominated in other currencies. In addition, any UK companies, which report their earnings in overseas currencies such as the US dollar, will also have benefited from the currency translation back to sterling.

Given that more than 75% of FTSE 100 companies’ earnings are derived from overseas, this is the reason why the FTSE 100 Index tends to rise when sterling falls and vice versa. However, more domestically orientated companies, usually found in the FTSE 250 Index, will tend to struggle when the pound falls as it may cost them more to produce their products/goods because of the increased costs of overseas materials.

A key thing to understand is that a change in sterling can also be attributed to the performance of the currency it is being compared to. For example, the US dollar has experienced bouts of weakness during 2020 that has seen sterling strengthen at various points, despite a lack of domestic UK drivers.

Looking further ahead, while the UK has officially left the European Union there is still the small matter of a trade deal to be worked out before the end of December 2020. With negotiations ongoing, there remains the possibility that sterling will be further buffeted by dramatic headlines as the deadline draws nearer.

Of course, fluctuating currencies are nothing new but it may benefit investors to consider holding a well-diversified portfolio that can adapt to the changing environment and engage with their financial adviser about any concerns they have so that any bumps in the path of sterling should not be a major obstacle on the investors’ journey.

Investing involves both risks and opportunities. Brexit is one of the risks for investors to consider in the current market environment. Some of the general risk factors include strategy, equity, credit, interest rates, liquidity and currency. Our ‘Investing through volatile times’ document provides an important context for investing and market volatility over the long term.

For example, diversification across different asset classes, geographical exposure, different managers and styles are sensible investment tools that are used by professional investors to navigate market volatility. Furthermore, some investors may use derivative instruments such as futures or options as protection strategies. With your financial adviser, you can determine the investment strategy and level of risk that is appropriate to your unique risk tolerance, goals, circumstances and time horizon.

We have monitored the progress of Brexit and the possible implications for all our customers, so that we are well prepared to ensure the best outcomes. Now that the UK has left the EU, and negotiations are focused on the terms of the UK’s future relationship with the EU, we continue to monitor the situation. If there is any need, we will tell you whether and how you could be affected, and what solutions are available.

All investments can go up and down in value over time and returns are not guaranteed. One issue that can cause value to fall is market sentiment. If lots of people worry about the outcome of the negotiations and start to sell their investments, then values could fall. For the most part though, the basic principles of long-term investing remain the same – short-term falls do not necessarily impact on long-term goals.

We are unable to give you advice and you should speak to your financial adviser before making any investment decisions. However, it is important to bear in mind that the outcome of Brexit and the implications will not be fully known until trade negotiations are complete. It can be easy to get distracted by short term noise and market movements, and so a financial adviser can help you focus on your long-term goals and help avoid some of the potential risks of trying to time the markets.

Nobody knows how investment markets could be affected by Brexit and what the implications will be. However, it’s important to remember that most investments should be seen as a medium- to long-term commitment. Your financial adviser or fund adviser can help you to devise an investment strategy which is appropriate for your investment goals and the amount of risk you wish to take.