Moola Market Commentary - December 2017

Posted by Simon Moore on December 21
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As the year draws to a close, we wanted to discuss the impact of Brexit on portfolios especially as it is a topic that tends to dominate the news cycle. Now is a good point to discuss this, because negotiations between the UK and EU have now moved beyond the first stage to broader discussion of trade.

 

Diversification

The first thing to note, is that even though you live in the UK, and so Brexit will likely have a direct impact on you, Moola investments are different in that they are diversified globally. This means your portfolio investments aren't only in the UK, but in the US, Asia and Europe.

Brexit in whatever form it ultimately takes, will almost certainly impact the fortunes of the UK, and by extension, the EU. However, Moola portfolios include exposure across regions of the world. For example, Moola portfolios typically include shares in the US and Asia that are relatively less impacted by Brexit. Therefore, Brexit isn't as central driver of the typical Moola portfolio.

Depending on your risk level between one and two thirds of your Moola portfolio would be invested  overseas.

In fact, even within the UK, the bulk of the shares in portfolios are very large UK companies, such as BP or AstraZeneca, these large companies sell products all over the world.

All of which is to say that, Moola portfolios are less exposed to the UK economy, and more exposed to the global economy. This international exposure means that Moola portfolios are less exposed to the ups and downs of Brexit than you might have imagined.

For 2017, this appears to have been a good thing, because UK growth appears to have been positive, but slower than many other large countries of the world. Perhaps reflecting this, the UK stock market has also grown at a slower rate than many other markets.

 

Currency

Yet, one of the main impacts of Brexit so far appears to have been a change in the value of the pound, which has lost approximately a fifth of its value against the dollar since Brexit.

Now, that's not to say that Brexit is responsible for all of that move. Currencies move for many reasons. However, so far it does seem as though some of the impact of any potential changes due to Brexit has come through the pound.

This is one reason why we believe currency hedging is important, we use currency hedging for certain Moola portfolio positions and this can smooth the impact of currencies on portfolios.

 

What The Future Holds

We have no crystal ball, and with Brexit just as with any negotiation, it's unclear what the final agreement will be, or indeed, even if one will be reached. At this point it appears to us that the markets have adjusted to a relatively negative assessment of Brexit for the British economy, and were that assessment to change, then the impact may be positive for investors.

Nonetheless, the main point is that due to international diversification, Brexit remains a smaller consideration for Moola portfolios than you might expect. 

Written by Simon Moore

Simon is responsible for investing and related content at Moola. He was previously CIO of FutureAdvisor, a US digital advisor. His most recent book Digital Wealth, explains automated investing. He studied economics at Oxford, and completed his MBA at the Kellogg School of Management.

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