Citywire printed articles sponsored by:
View the rest of this gallery online at http://citywire.co.uk/wealth-manager/gallery/a756700
From the EU to Scotland: how 5 readers are managing UK political risk
on Jun 16, 2014 at 14:37
With the Scottish independence vote looming and the Conservatives promising an in-out EU referendum, we ask five wealth managers how they are managing UK political risk.
Mark Seddon, investment manager, Redmayne Bentley, Liverpool
‘First, I don’t believe there is a political risk in Scotland as I don’t think they will vote to leave. Second, with the EU, I can’t envisage the UK voting its way out of the European Union.
We are not taking defensive measures against this backdrop at the moment, but we are keeping an eye on the situation. In general we’re actually quite bullish on the UK. The economy is recovering and concerns about corporate profits not catching up with valuations are being mitigated with steady flows of good news.’
James Gardner, chartered wealth manager, Alpha Portfolio Management, Bristol
‘Although I feel Scotland’s independence is currently a bit of a sideshow, we have found companies with exposure to Scotland are having to discuss the issue with their shareholders. At the very least, it is a distraction for those companies, but more likely will discourage investment in the country until the result is known.
‘Before the EU vote, next year’s general election outcome is possibly more important. In terms of UK equities, there would appear to be some sectors that have political risk associated with them – notably utilities and financials, and banks in particular.’
Stacey Ash, director & investment manager, iFunds, Coventry
‘With respect to Scotland, it is a euro in/out vote that will be of greater significance to global markets. However, both votes are likely to affect gilts and the pound. With the majority of portfolios, we are global multi-asset “go anywhere” asset managers, with no prescribed asset allocation, which means we can avoid asset classes affected by these votes. Exacerbated by the media attention, investors are likely to position themselves ahead of both votes to limit the downside from the wrong outcome rather than to benefit from the right one.’
John Wyn Evans, head of investment strategy, Investec, London
‘From a market perspective, both a Labour victory and the uncertainty surrounding an EU referendum would be seen as marginally negative developments. This could be expressed through a weaker currency as investors feared either trade disruption or policies unfriendly to wealthy foreigners, a source of strong current investment flows. However, given that 75% of FTSE 100 revenues are generated outside the UK, the large cap index provides a natural low risk hedge against these outcomes. We also look to diversify our holdings by investing in suitable companies outside the UK.’
Mark Williams, investment manager, Charteris Treasury Portfolio Managers, London
‘It would be folly to ignore the very real possibility that Scotland could become an independent country and to be aware of the potential risks and uncertainties that come with it. There are many unanswered questions surrounding Scottish independence: namely currency risk if they lose the pound, regulation, tax, and interest rates. As a general rule, clients do not like uncertainty in the political or financial systems so some clients will start to avoid stocks such as Standard Life & RBS and switch into sectors that would be less affected by Scottish independence.’
James Barber, head of investments, Epoch Wealth Management, Bath
‘Political risk is difficult to incorporate into portfolio construction since logical or rational decisions are not always the ones taken, making outcomes more difficult to predict. Our equity allocations, both UK and international, already consider broad global political risk within the positions taken. With regard to individual political events such as the Scottish referendum, the long-term nature of the investment decisions we are making for our clients means we prefer to focus on those strategies that put company fundamentals first.’
Bill O’Neill, Head of Investment Office UK, UBS Wealth Management:
'The big issues that are presenting a challenge to the status quo of the UK political landscape will have ramifications that aren’t simply confined to Westminster, Holyrood, and Brussels. Like any period where uncertainty prevails, markets and investors are going to react. Risk premiums on assets related to either the 2014 Scottish independence vote or the proposed 2017 in-out European Union referendum are likely to rise in the run-up to each event.
'Our clients in Scotland and the rest of the UK are currently in the precautionary state-of-mind, rather than outright concern about the Scotland referendum. The important story here is for clients to have diversification of underlying assets across their portfolio. The factors that we are advising them to consider are asset values, the impact across markets and regions, formal or informal currency union, the downside to sterling if the ‘Yes’ vote forecast rises, and perhaps most crucially, changes in business taxes which could create incentives and penalties vis-à-vis people south of the border.
'European Union membership changes are obviously on our horizon, but the extent to which we are currently accounting for the associated risks in our tactical or strategic asset allocations is limited. Of more interest in the near term will be the result of the 2015 general election, which will inform whether the referendum goes ahead.'