Ch…Ch…Changes?

They say a change is as good as a holiday. Yet head of multi-asset investments David Coombs has just come back from a fortnight away and thinks the status quo will suit his investments just fine.

Ticker tape

I am someone with a very low boredom threshold. I do not enjoy standing still. This can be very irritating for those around me, both professionally and in my personal life. I welcome change, in fact I love change. And yet right now I find I am hoping for none. In one case this is not just surprising it might even be shocking.

There seem to be two races taking place on opposite sides of the Atlantic right now each of which could result in seismic changes in the macro-economic order of things. On the North American side, the closing weeks of the long drawn out US presidential election. On this side, the race for the UK and the European Union (EU) to agree on a trade relationship before the end of the year. Given that this presidential election seems to have been dragging on for nearly two years and Brexit even longer, we’ve become somewhat numb to the daily news flow. That said, each has the potential for significant financial and economic effects.

One thing is for certain: while the US is certain to have a president when the election is over (potential recounts and disputes notwithstanding), there’s no guarantee the UK and Europe will end up with a deal. In keeping with the past four years since the UK voted to leave the EU, uncertainty still abounds. Will there or won’t there be a deal? Nobody seems to know. Likewise, will Mr Trump or Mr Biden win the election? The polls are currently showing Mr Biden in the lead, but we know anything can happen.

Even so, I’m inclined to think positively. For instance, with Brexit I have a gut feeling that the UK and the European Union will likely eke out some sort of agreement, even if it means leaving some of the trickier bits for another day. With the world economy having been battered and beaten over the past six months, it’s difficult to imagine both sides walking away with absolutely nothing.

As one of the major economies of the world, the UK made large contributions to the EU each year. With the European economy being hit hard by COVID-19 and the UK no longer being a member, the trading bloc faces a serious funding gap. If the two sides were to continue their standoff and turn their backs to each other, there will be no winner. This may sound like a leap of faith, but it leads me to believe common sense will prevail and we will see a deal, even if it is imperfect.

Despite this, I am increasingly of the belief that we have moved beyond the shock phase of Brexit to one where people are beginning to think Brexit may not be as bad as they believed two or three years ago. The UK has one of the largest consumer markets in the world and it continues to be a strategic market for auto manufacturers and other companies alike. If Brexit in a potential no-deal scenario turns out not to be too bad after all, we could see an increase in demand for UK assets. Likewise, if there is some form of a deal that is a positive surprise, we could see a relief rally of sorts.

The UK faces a different sort of investment risk in the US presidential election. Looking at it from a purely investment perspective, we know financial markets prefer the status quo. They don’t like change because this can also mean unknown, or unwanted, risks or shocks. This is why a Trump victory in November and the Republican retaining control of the Senate would be positive for markets. Not because he is universally liked, but because that is the status quo. Markets may not rally on this result, but they likely won’t turn negative either.

This is not to say a Biden victory will necessarily be bad for investors. If he wins the presidency – and the polls are currently suggesting he will – and the Republicans keep the Senate, markets will likely be sanguine about this result. In many ways, it would be the best of both worlds: a less controversial person in the Oval Office and the opposing party controlling the Senate to act as a block to any of Biden’s policies that fail to gain support from both parties. Now, if Mr Biden wins the presidency and the Democrats take the Senate, then markets would see that as negative, at least in the short term.

Each of these events affects UK investors, but they differ in terms of their immediacy and importance. Brexit is by far the most significant event in the UK next to the COVID-19 pandemic, and the potential risks and opportunities it creates will have an impact on all citizens. The US presidency, on the other hand, certainly can have a short-term impact on investment markets, but the broader ramifications are likely to be less severe.

So how does this translate into how we’re positioned in the Rathbone Multi-Asset Portfolio Funds? In terms of the US election, our base scenario is for a Trump victory or Biden win with a Republican Senate, but in reality it is too early to change the portfolios. While Brexit may turn out well for the UK with a deal with the EU in place, we lowered our exposure to UK assets earlier this year due to our concerns over the government’s handling of the pandemic and added to our US exposure principally in smaller companies. For now, the uncertainties mean stay with the formula that has seen us through so far. As a great man once said we don’t need to be heroes.

Important legal information

This area of the site is for professional advisers

Please read this page before proceeding, it explains certain legal and regulatory restrictions applicable to the distribution of this information. It is your responsibility to inform yourselves of and to observe all applicable laws and regulations of the relevant jurisdiction.

This section of the website is directed only at investment advisers and other financial intermediaries who are authorised and regulated by the Financial Conduct Authority (FCA).

The information provided in this site is directed at UK investment advisers only and must not be circulated to private clients or to the general public. It does not constitute an offer to sell, or solicit an offer to purchase any investments by anyone in any jurisdiction in which such offer or solicitation is not authorised or in which a member of the Rathbone Group is not authorised to do so.

I confirm that I am an investment intermediary authorised and regulated by the Financial Conduct Authority. I have read and understood the legal information and risk warnings below:

Important Information (Terms and Conditions)

The information contained on this site is believed to be accurate at the date of publication but no warranty of accuracy is given and the information is subject to change without notice. Any opinions or estimates included herein constitute a judgement as of the date of publication and are subject to change without notice. Furthermore, no responsibility is accepted for the accuracy of any information contained within sites provided by third parties that may have links to or from our pages.

Rathbone Investment Management Limited ("RIM") is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered Office: Port of Liverpool Building, Pier Head, Liverpool L3 1NW. Registered in England No 01448919.

In accordance with regulations, all electronic communications and telephone calls between Rathbones and its clients are recorded and stored for a minimum period of six months.

The information provided in this site is directed at UK investors only. It does not constitute an offer to sell, or solicit an offer to purchase any investments by anyone in any jurisdiction in which such offer or solicitation is not authorised or in which a member of the Rathbone Group is not authorised to do so.

In particular, the information herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in France and the United States of America to or for the benefit of United States persons (being resident in the United States of America or partnerships or corporations organised under the laws of the United States of America or any state, territory or possession thereof).

In order to comply with money laundering and other regulations, additional documentation for identification purposes may be required.

Rathbones shall have no liability for any data transmission errors such as data loss, damage or alteration of any kind including, but not limited to, any direct, indirect or consequential damage arising out of the use of services provided or referred to in this website.

Past performance should not be seen as an indication of future performance.

The value of investments and the income from them can fall as well as rise and you may not get back the amount originally invested, particularly if your client does not continue with the investment over the longer term.

Changes in the rate of exchange between currencies may cause the value of an investment to go up or down.

Interest rate fluctuations are likely to affect the capital value of investments within bond funds. When long term interest rates rise the capital value of units is likely to fall and vice versa. The effect will be more apparent on funds that invest significantly in long dated securities. The value of capital and income will fluctuate as interest rates and credit ratings of the issuing companies change.

Tax levels and reliefs are those currently applicable and may change and the value of any tax advantage will depend on individual circumstances.

Investing in emerging markets or small companies may be potentially volatile, as these investments are high risk.

The design, text and images are owned, except as expressly stated by members of the Rathbone Group. They may not be copied, transmitted, displayed, performed, distributed, licensed, altered, framed, stored or otherwise used in whole or in part or in any manner without the written consent of Rathbones except to the extent permitted and under the procedures specified in the copyright Designs and Patents Act 1988, as amended and then only with notices of Rathbones' rights.

Rate this page:
Average: 5 (3 votes)

Subscribe to the In the KNOW blog email

Archive