Quarterly Review


David Wheildon / October 2018

At a time of year when the colours always change in the UK, business is pondering whether some of them this quarter will be political. Facing uncertainties in London and a few more likely global bumps before Christmas, it’s not crystal balls the market needs, says David Wheildon, but some sensible management of risk as we prepare for potential new opportunities.

Despite my best intentions it is impossible for me to begin without focussing on Brexit and the uncertainty it (amongst other matters) is causing and the methodology of dealing with the unknown. In times of uncertainty it is unwise to bet one’s entire finances on a specific outcome however strongly one feels about the likelihood of such an outcome. Rarely does any individual’s crystal ball provide absolute clarity on the future and in our lengthy investment management experience this is more than true when anticipating market movements.


We’re all aware of the possible “No Deal” outcome which in fact is not a scenario of no deal at all but simply a reversion to the general World Trade Organisation (WTO) trading conditions. In fact, the phrase “No Deal” should really be replaced by “WTO deal” but it sells more newspapers to describe it as “No Deal”. Whatever we choose to call it, a deal of this type will probably lead to a vote of no confidence in the current Government which will likely then trigger a General Election and because of that Election a change in not only our Prime Minister but also the colour of the Government.

Although a No Deal outcome will create problems for businesses it will however also create opportunities; for example, we may see the return of “booze cruises” and Tesco reopening their Calais superstore. Further, although the WTO terms might be less attractive for European trade there will be plenty of opportunities to create new trade deals with countries outside the EU and clearly the other members of the EU will be as keen to trade as easily with us as we are with them. Do we really believe that the current CEOs of Audi and BMW are going to sit quietly by and watch a major market for their cars such as the UK drift away, or that the Champagne and Burgundy producers in France will not want us to continue to open the occasional bottle? There is a strong consensus that with all the hidden (and not so hidden) political agendas on show that businesses will get hold of the situation and make whatever deal is agreed work – after all they have no other option!



In this environment the investment management solution is not to knee jerk react by selling every holding and running to the nearest hole in the ground with the cash. Rather it is to reduce exposure to the more sensitive holdings by increasing exposure to more stable and secure holdings, but keeping some “skin in the game” as the brokers say. Recently markets dropped around the world creating headlines, and under the new Mifid II rules we saw letters from some fund managers explaining about a drop of over 10%. However, since then there has been a degree of recovery in values and life is moving on.

The last “bump” was a combination of Brexit, America now “doing too well”(!) and China potentially slowing a little; it was (as always) unsettling but nothing more. There are going to be further moments like this in the coming months and having made our portfolios generally more stable we should simply ride them out. Bearing in mind the disaster that is holding money on deposit for the long term (ie: inflation at roughly double the rate of interest earned) the only alternative to a reduced risk, medium term hold strategy is to try and “time the market” by selling and buying back.

The only successful manager who has attempted this in the past has either had a crystal ball which works perfectly or one who has been simply lucky. We do not feel it is appropriate to base the long-term investment management strategy of our clients’ moneys on luck, therefore recommend that the latest rebalance be actioned as soon as possible and, having “battened down the hatches”, that we ride through the coming troubles leaving the highly stressed fund managers to deal with matters on an hour by hour and day to day basis.

Enough of Brexit (I am sure you agree); there are plenty of other opportunities in the global economic sphere and America is indeed doing well and where it leads, others tend to follow. President Trump may simply be benefiting from becoming President at the right time and keeping the economy growing at its current rate will define whether this is the case or not. Despite a slowdown in China their growth is still impressive and new markets in Asia and Africa are always opening. Now isn’t the time to “throw the baby out with the bathwater”. By adjusting the portfolios now, then riding the coming bumps, the fund managers should be able to profit from the volatility and the portfolios should continue to provide very solid medium-term returns.

This article is the opinion of David Wheildon,
Director of The Legal Brokerage.

This article is the opinion of David Wheildon