Is the latest ICM poll for the Guardian a watershed moment for the Brexit debate? For the first time, the telephone and online survey has put the leave campaign ahead with the overall result showing a 52% - 48% split in favour of the UK leaving the European Union.
Remember during the Scottish independence campaign, the poll favoured a ‘Yes’ vote that prompted political representatives to scurry up North, promising all sorts of devolution goodies if the Scots stayed? It seemed to work. Will this ICM/Guardian poll create the same sense of panic?
Is it just a rogue poll? The bookies seem to think so. For me – for now, at least – it’s too difficult to call.
So how on Earth do we approach an investment strategy against this level of uncertainty? By now we thought the momentum to remain would be unstoppable and the Brexit trade would be starting to unwind - so much for that. Leave remains the biggest risk to a portfolio in the short term, so it makes sense to retain some ‘insurance’, but what does this insurance look like and how much will it cost? Well, forget those costly put options; we need to be more creative.
Given the uncertainty around domestic earning equities and gilts, reducing exposure to those areas would seem sensible – or would it? Some of these companies have already underperformed over the past six months, while gilt yields could fall even further on a Brexit vote, especially if the Bank of England immediately cut rates and reintroduced QE (as it surely would have to). In fact, I may even add to these positions over the next few weeks, so right now, holding more cash than usual would seem sensible.
Meanwhile, I believe buying or holding foreign currency assets would still seem appropriate. If we vote to leave, there could be a strong rally in the US dollar and yen, against sterling. I like both the US and Japanese equity markets anyway, so these positions should not yet be reduced. US index-linked treasuries look quite attractive at current levels and appear to be a good way of getting more dollar exposure into a portfolio while retaining a high level of liquidity.
The good old ‘L’ word - as we go into a very uncertain period, liquidity is our friend. Often highly liquid investments, such as mega-cap equities and quasi-government investment grade bonds, look less exciting, but they can be traded quickly, even during periods of market stress. This gives a manager a clear edge, as it allows them to rebalance a portfolio during these ructions and take advantage of any short-term mispricing of risk.
Considering where we find ourselves, I think it’s right to hedge my bets at this stage.
Next week, in my final Brexit blog, I’ll attempt to steer strategy through the final days leading up to the vote.
