22nd June 2016

Architas: Positioning portfolios ahead of the referendum

Nathan Sweeney, senior investment manager, Architas:

“Anticipating challenging markets ahead, we began the Brexit countdown last December. Maintaining a neutral outlook we diversified our asset allocation to position our funds for a wide range of outcomes.

“Brexit is not the only risk factor we consider when creating our diversified portfolios. Let’s not forget about the global growth story, the gradual devaluation of the Chinese Yuan that went almost unnoticed last week, and the small matter of the anticipated two rate rises in the US this year. These are all on our agenda.

“So what are our plans for Friday?

“If there is a vote to remain, some of the immediate uncertainty will go away which usually makes markets happy. But underlying fundamental worries may still persist in the UK around inflation, and the strengths of the economy; and we believe growth (or lack of) will be the new talking point. As such we don’t expect to rush into equities despite a likely short-term bounce. We would retain our overweight position to alternatives.

“If the UK votes to leave, then UK equities are likely to drop in value as will the pound. Interestingly this fall in currency could actually benefit equity markets in the long run as exports will be cheaper. We would likely maintain our underweight position to equities but look for buying opportunities should the market fall further than we think is justified. In this situation we would still retain our overweight position to alternatives.”

Our current positioning

Currency: We began reducing exposure to the pound and increasing exposure to other currencies. A good example of this was by adding to dollar assets.

Fixed Income: We have been rotating fixed income exposure by selling higher-risk corporate bonds and buying government bonds to reduce risk.

Equities: We have been decreasing the amount of equities held overall, because of a combination of Brexit worries and concerns about the slowing pace of growth in the UK economy. We have a preference in the UK for equity income funds as they have a more defensive position by investing in sectors such as Pharma or Utilities.

Property: After three years of strong performance in UK commercial property we decided that it was time to move into specialist property holdings such as healthcare retirement homes.

Alternatives: We have been increasing allocations to alternative assets - such as aircraft leasing and wind farms to increase diversity across different types of assets. These assets also have the potential benefit of attractive income.

“Considering the wide-ranging uncertainty, we believe it prudent to set a strategic view we are happy to stick with and be ready for tactical opportunities. In short our investment philosophy is to invest for the longer term, and not to get caught up in daily short-term volatility.”

Brexit, Investments