Since the 2016 referendum the pound has fluctuated in value, 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 the rhetoric from new Prime Minister Boris Johnson’s government about the increased likelihood of the UK leaving the EU without a deal, however the significant victory of the Conservative party in the UK general election on 12 December pushed the currency above $1.35, its highest level since May 2018, as a 31 January 2020 Brexit became more certain.
Overall the depreciation of sterling versus most major currencies over the past three-and-a-bit years, has had the effect of increasing the sterling value of assets denominated in other currencies. For example, the US stock market delivered an annual return of around -4.5% in US dollar terms in 2018, but a modest gain of 0.7% in sterling terms. Similarly, the gains of US technology assets have been amplified for UK investors. This currency translation will have increased the value of overseas denominated assets in sterling.
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 roughly 80% of FTSE 100 companies’ earnings are derived from overseas, this is the reason why the index tends to rise when sterling falls and vice versa. However, more domestically orientated companies 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.
The increased certainty over the timing of the UK’s exit from the European Union has helped boost the currency, which in turn has benefited UK small and mid-sized companies, however, there is still the matter of a trade deal to be worked out before the end of December 2020, and so there is 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 appreciate it is a very unsettling time for investors at the moment. 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.
You should speak to your financial adviser. Nobody knows how investment markets could be affected by Brexit and what the implications will be, and it’s important to remember that most investments should be seen as a medium- to long-term commitment. All investments can go up and down in value over time and returns are not guaranteed. 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.
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.
Unless we have contacted you directly to inform you otherwise, nothing will have changed with your policy.The value of your investment is driven by market values. You should speak to your financial adviser if you have any questions about your current asset allocation.
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. Cashing in investments or holding money in cash is not free from risk as it may not protect you from inflation and/or give your money the best chance to grow.
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.
It is important to remember that investments should be seen as a medium- to long-term commitment. In the first instance, you should speak to your financial adviser or fund adviser about your options and any investment decisions you are considering. We are not able to give you financial advice. Should you wish to switch funds or check the value of your investment, you can do this using our online services or by contacting us.