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Brexit strategy

Wider investment strategy discussions not dealt with elsewhere
XFool
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Brexit strategy

#159096

Postby XFool » August 12th, 2018, 9:05 pm

NO! Not another Brexit thread that's gone rogue and escaped from Polite Discussions. :P

What are people doing/have already done wrt their investment portfolio faced with the impending Brexit?

Probably should have asked this yonks ago...

Also, sorry if there is already a thread on this - I don't find the TLF Search facility terribly helpful.

tjh290633
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Re: Brexit strategy

#159107

Postby tjh290633 » August 12th, 2018, 10:46 pm

Nothing.

TJH

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Re: Brexit strategy

#159132

Postby ap8889 » August 13th, 2018, 7:06 am

I have a heavy weighting of global trackers so less worried than I would be if I was undiversified. I have a smaller cash pot which may be deployed if the FTSE gets a downwards push, but otherwise it is business as usual.

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Re: Brexit strategy

#159138

Postby Darka » August 13th, 2018, 8:32 am

Nothing, I don't think Brexit will be as big a problem as the media are trying to make out.

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Re: Brexit strategy

#159233

Postby SalvorHardin » August 13th, 2018, 2:19 pm

The only change that I've made is to build up a lot more cash than I would normally hold, moving some of it into a basket of foreign currencies.

This isn't because I'm expecting a serious economic downturn due to Brexit. It's possible that there will be a half-decent deal, or that there will be no deal but the results will not be all that significant. After all, the consensus prediction of economic catastrophe in the second half of 2016 if Britain voted to leave were seriously wrong. But then macroeconomic forecasters make astrologers seem accurate.

There's a good chance that the increasingly hysterical reporting of Brexit causing massive problems will to some extent become self-fulfilling. If this happens then this will throw up a few bargains next year for those of us with a strong nerve, hence the cash.

I invest much less in the UK nowadays, but that's because of Corbyn not Brexit.

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Re: Brexit strategy

#160152

Postby Hariseldon58 » August 16th, 2018, 3:46 pm

There has to be a reasonable chance that we will see irrational fear during the course of the next few months, already invested largely in global stocks, like SalvorHardin I mildly reduced stock exposure and placed the proceeds in US dollar bonds, mainly short treasuries in the hope that we may see something interesting...

I would look at UK investment trusts with interest where a falling pound and potentially wider discounts may become available....

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Re: Brexit strategy

#161616

Postby tieresias » August 23rd, 2018, 10:04 pm

Since I began sort-of-serious investing in 2003 and really serious investing in 2010 and let's get to FIRE asap in 2014, I have always tried to keep non-UK investments about equal to UK investments.

I accept the currency risks and do nothing to mitigate them. Things could go either way.

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Re: Brexit strategy

#161670

Postby TheMotorcycleBoy » August 24th, 2018, 8:03 am

Mel and I only started investing in march of this year. About 78% of our current investments are purely in the UK (the remaining 12% is in a world equity index tracker).

I think the brexit issue, whilst not being a great thing, is over hyped. In my naive view, I think it actually makes it a reasonably sane time for me and Mel to have started, since it just means the UK market is likely to remain predictably slow and not cause us any massive surprises until it's done and dusted.

Or perhaps I'm guilty of self-delusion.

Matt

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Re: Brexit strategy

#161700

Postby TUK020 » August 24th, 2018, 9:51 am

Melanie wrote:Mel and I only started investing in march of this year. About 78% of our current investments are purely in the UK (the remaining 12% is in a world equity index tracker).

Matt


Matt,
Forgive me if I am pointing out something that is obvious to you already.
I think you need to differentiate between the UK economy, and investments in the UK stockmarket.
Some 2/3 or the earnings of the FTSE100 companies are overseas, and therefore not related to the UK economy.
This is why you get the situation where bad Brexit news leads to sterling dropping, and the £ share price of BP rises -as it has most of its earnings overseas, reports in $, and declares dividends in $, although paid in £.
tuk020

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Re: Brexit strategy

#161720

Postby TheMotorcycleBoy » August 24th, 2018, 10:42 am

TUK020 wrote:
Melanie wrote:Mel and I only started investing in march of this year. About 78% of our current investments are purely in the UK (the remaining 12% is in a world equity index tracker).

Matt


Matt,
Forgive me if I am pointing out something that is obvious to you already.
I think you need to differentiate between the UK economy, and investments in the UK stockmarket.
Some 2/3 or the earnings of the FTSE100 companies are overseas, and therefore not related to the UK economy.
This is why you get the situation where bad Brexit news leads to sterling dropping, and the £ share price of BP rises -as it has most of its earnings overseas, reports in $, and declares dividends in $, although paid in £.
tuk020

Thanks for this TUK. And don't worry about asking forgiveness!

I see what you mean. Yes our 78% is 78% in various shares and bonds purchased on the UK market. You are quite right about some of the earnings coming from abroad. I actually hadn't fully appreciated that on average it was 2/3, though I suppose I'm not surprised.

But regardless, Mel and I are definitely not well enough informed to do anything vaguely strategic re. Brexit. We are just "cautiously" trying to build up a long term stocks and shares ISA as best as we can.

Matt

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Re: Brexit strategy

#161731

Postby TUK020 » August 24th, 2018, 10:57 am

Melanie wrote:
But regardless, Mel and I are definitely not well enough informed to do anything vaguely strategic re. Brexit. We are just "cautiously" trying to build up a long term stocks and shares ISA as best as we can.

Matt


The geographic spread of businesses is something that you might want to consider when thinking about what level of diversification of your portfolio, not just the sectors they operate in. Ideally you build up a spread so that you are not too exposed to any one part of the global economy

e.g.
Marstons - UK focused
NG - USA/UK
HSBC - FarEast + Emerging
Unilever/GSK/RDSB - Global
These are not particular recommendations, just examples of differing geographical dependence

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Re: Brexit strategy

#161739

Postby TheMotorcycleBoy » August 24th, 2018, 11:24 am

TUK020 wrote:The geographic spread of businesses is something that you might want to consider when thinking about what level of diversification of your portfolio..

Yup! Thanks again.

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Re: Brexit strategy

#161756

Postby simoan » August 24th, 2018, 12:16 pm

I think you need to be honest with yourself, and take the approach that you have no idea what the outcome of Brexit is going to be, or what the secondary effects on bond, equity and currency markets will be, and act accordingly. This likely means doing nothing and carrying on as usual, but if that means holding more cash than normal, then that seems entirely sensible as a natural hedge against uncertainty whilst there is such an obvious "known unknown" ahead.

However, you also need to remember that what seems like a very big deal right now will be but a blip in the wing mirror of history for the stockmarket. I find it's always good when you find yourself worrying about such things to go and look at a long-term chart of the FTSE100. I've not been investing that long in the grand scheme of things, but I've still survived the Tech bubble, 9/11, the Gulf War, and the Great Financial Crisis of 2007-08, plus plenty of other minor panics, and they all look like mere blips on a long term chart. In fact, on a seemingly daily basis there are things to worry about (North Korea, Trump, Trade wars, Brexit, Russian spies) and if you concern yourself with them too much you'd never end up investing in equity markets at all. I've actually stopped listening to the R4 Today program in the morning as I do not find it helpful to my investing because there is far too much arguing, anger and negativity.

If you're a short term trader, go ahead and worry about where the stockmarket is going in the short term. However, if you're a long term investor you should just carry on finding good companies with sound balance sheets in which to invest and generate income.

All the best, Si

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Re: Brexit strategy

#161790

Postby tjh290633 » August 24th, 2018, 1:42 pm

To add to what simoan has said, I started investiing in 1958, so I've seen a fair number of market upsets, too many to list. What I have found is that by staying invested I emerged out the other side virtually unscathed. 2008 was an exception because so many companies were affected. Nevertheless, some judicious portfolio pruning and selective reinvestment got me back on track relatively quickly.

One noticeable feature is that Investment Trusts suffered much less than my portfolio in terms of dividend income. None, of course are immune from general market movement.

The other aspect is that regular Investing does allow you to take advantage of a depressed market. I've been doing that since I first started, for one reason or another. Originally it was £3 a month. Nowadays rather more than that. Getting into the habit helps.

TJH

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Re: Brexit strategy

#161803

Postby Itsallaguess » August 24th, 2018, 1:59 pm

XFool wrote:
What are people doing/have already done wrt their investment portfolio faced with the impending Brexit?

Probably should have asked this yonks ago..


For a while now I've been carrying around 15% of investable capital in near-cash equivalents, and having done so for so long, I think it's something I will probably do for the foreseeable future too. I should add that I'm not doing so in a specific 'Brexit-related' capacity (I actually think there are other more serious 'global-shock' issues around, and are likely to stay around for much longer than any directly 'Brexit-related' risks....), but more in terms of general risk-and-portfolio-management.

Investing is most definitely a journey, and this is one aspect of the 'getting to know thyself' part of the job, and it simply suits my investment personality very much to have this emergency-buffer there alongside my other 'fully invested' parts of my portfolio.

If it's costing me something to do so, then I still see it as the best money I've paid for a sleeping pill yet....

I should add here that during quite severe downturns in the past, I've had no problems at all pressing the 'buy' button with capital that I've had available.

It wasn't easy, but I was able to do it - if I'd struggled with that aspect in the past then I'd probably be fully invested, or as near as dammit.

I don't think there's much point having any spare cash available for such an eventuality if I wasn't able to deploy it when the time came.

Cheers,

Itsallaguess
Last edited by Itsallaguess on August 24th, 2018, 2:02 pm, edited 1 time in total.

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Re: Brexit strategy

#161876

Postby TUK020 » August 24th, 2018, 5:05 pm

tjh290633 wrote:To add to what simoan has said, I started investiing in 1958, so I've seen a fair number of market upsets, too many to list. What I have found is that by staying invested I emerged out the other side virtually unscathed. 2008 was an exception because so many companies were affected. Nevertheless, some judicious portfolio pruning and selective reinvestment got me back on track relatively quickly.

One noticeable feature is that Investment Trusts suffered much less than my portfolio in terms of dividend income. None, of course are immune from general market movement.

The other aspect is that regular Investing does allow you to take advantage of a depressed market. I've been doing that since I first started, for one reason or another. Originally it was £3 a month. Nowadays rather more than that. Getting into the habit helps.

TJH


I guess once you kept your nerve and stayed invested through the Cuban Missile Crisis, and the imminet outbreak of nuclear war, then stuff like Brexit is small beer :D

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Re: Brexit strategy

#162569

Postby redsturgeon » August 28th, 2018, 11:42 am

Moderator Message:
Any further off topic posts will be deleted. Please post on one of the numerous Brexit threads over on Polite Discussion if you have a general point to make. Only specific investment ideas here please.

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Re: Brexit strategy

#162715

Postby WorkShy » August 28th, 2018, 9:12 pm

It all feels far to close to 50:50 to call. I haven't modified my asset allocation to hedge Brexit because trying to hedge one variable (Brexit) with assets which are a function of many variables (Fed tightening, trade wars, US exceptionalism etc) takes on too much correlation and basis risk.

In 2016, my hedge was selling GBP/USD and buying long-duration gilt funds (duration 22) prior to the vote. This time buying gilts looks less attractive. In 2016, 30-year gilts rallied 90bp (2.15% to 1.25%) post the vote, for a return of 20%. Now 30-year gilts are at 1.75%. On a hard-brexit, I can't see it necessarily going lower than 1.25%; they may price the risk of fiscal expansion or a Corbyn government. On a soft Brexit, 30-year gilts could easily go back toward their 2015 range of 2.00-2.75%. So I feel my upside from being long gilts is perhaps 10%, my downside 5-20%. Shorting GBP/USD at 1.29 also looks more symmetric. In trade-weighted terms GBP is weaker than at any time since the 1980s. Against the US$, the 1984-85 low was at 1.05 (18% weaker from here). So a hard Brexit might take GBP/USD to 1.00-1.10, a really soft Brexit perhaps to 1.45-1.60.

Nonetheless, I see hard Brexit (and more to an extent what comes with it) as a major risk for my family's future. I've always fallen back on the fact that we could consider emigrating to Australia (my partner/children have dual citizenship) but it's also in the grip of nationalism and anti-intellectual tendencies. On the other hand, soft Brexit would cause all those 2016 currency gains from foreign asset positions to vapourize. I want my cake and to eat it. Somewhat like the people in charge.

So in April I decided taking a directional view was silly and instead the best strategy was simply to buy volatility. GBP/USD implied vol was around 8.25% and downside skew was cheap. So with GBP/USD 1.40+, I bought £5mm payout of 1-year 1.22 strike at-expiry digital puts for 5.6% (£280k premium). I sold £3mm payout of these back recently at 15.1% and bought £2mm of 1.42 at-expiry digital calls for 11.7%. Implied vol has risen around 1%. So net I've paid £61k for £2mm/leg of a 1.22/1.42 digital strangle. Hopefully, in the ebb and flow, we bounce back up and I can sell some of the 1.42 to get myself to a costless structure but if we don't I'll weather losing £61k. No point fiddling anymore while Rome burns. I need to be highly leveraged into both wing scenarios as some sort of compensation for this insanity.

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Re: Brexit strategy

#162717

Postby johnhemming » August 28th, 2018, 9:15 pm

I have rarely done well with derivatives. It requires too much concentration on the markets.


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