With the British public voting to exit the EU, we believe the following:
- The implications for the UK and Eurozone will be prolonged and, at this point, are hard to predict.
- Unsurprisingly, this news will be a catalyst for further market disruption. However, there are many other significant issues driving global volatility, too.
- When market reactions are out of line with fundamentals, the ensuing volatility creates a potential opportunity for nimble investors to add value.
Expect more volatility.
Our Global Market Outlook
for 2016 was dominated by expectations of heightened market volatility with no clear direction for markets generally. Today’s Brexit vote result does nothing to alter that expectation. Global economic conditions, high asset valuations, and the progress towards the U.S. election in November will all likely contribute to volatility through the second half of the year.
Manage risk dynamically.
To invest in this environment, we continue to believe in a dynamic approach, reacting to market events to “sell the rallies” or, where appropriate, “buy the dips.” Identifying the signals in the noise requires a disciplined approach. After a multi-year bull market for equities and risk assets, risk management has been, and will continue to be, paramount in protecting returns. Across multi-asset portfolios, our belief is that this is achieved through diversification, particularly away from pure equity risk and through the use of options to structure a more attractive risk/reward pay-off.
Look for opportunities.
Over the coming days and weeks, as markets turn their attention to other events, volatile market conditions are likely to remain. Our investment strategist and portfolio management teams continue to identify ways to both manage risks and, just as importantly, look for opportunities to add value, especially where market reactions are out of line with our fundamental expectations.
For more details, please read our Global Market Outlook
The information, analyses and opinions set forth herein are intended to serve as general information only and should not be relied upon by any individual or entity as advice or recommendations specific to that individual entity. Anyone using this material should consult with their own attorney, accountant, financial or tax adviser or consultants on whom they rely for investment advice specific to their own circumstances.
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Please remember that all investments carry some level of risk, including the potential loss of principal invested.
They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
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Forecasting represents predictions of market prices and/or volume patterns utilizing varying analytical data. It is not representative of a projection of the stock market, or of any specific investment.
Investments in non-U.S. markets can involve risks of currency fluctuation, political and economic instability, different accounting standards and foreign taxation.
Diversification does not assure profit or protect against loss in declining markets.
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First Use: June 2016