A majority of delegates attending Expert Investor’s first post-Brexit conference said they think Britain’s vote to leave the EU will inflict long-term damage on their investments. There was no agreement, however, on the question whether bonds or equities would be hit most.
Roughly a third of the fund buyers attending the event have already adjusted their allocation after the vote. And especially in Europe, the risks are mostly to the downside, argued Fred Jeanmaire, manager of the Columbia Threadneedle Pan European Focus Fund. This is one of just five European equity funds that consistently finished top quartile over the past three consecutive years.
Constrained ECB
Jeanmaire, who like most fund managers had not anticipated on a Brexit vote, argued that the eurozone was in fact worse placed than the UK to deal with an economic downturn. The Bank of England has much more leeway to stimulate the economy than the ECB, as both benchmark interest rates and government bond yields are considerably higher in the UK, he said.
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“The ECB can only buy bonds with yields up to the refinancing rate, which is now -0.4%,” Jeanmaire reminded the audience. “So effectively, as soon as German bunds hit this mark, the ECB cannot buy any more bonds at all because they have to stick to a distribution key which is GDP-weighted,” he added. “So the question is how the ECB can support an economy that is already fairly weak from here.”
Jeanmaire acknowledged the ECB could theoretically lower interest rates further into negative territory, but he deemed this unlikely because of the increasingly negative side effects associated with such a move.
According to Mark Lacey, who manages the Schroders ISF Global Energy Fund, as well as its Gold Fund that was launched yesterday, the UK will be the main victim of Brexit.
“Most people who voted Leave didn’t know what they voted for,” he said, adding that they probably hadn’t taken notice of the possible economic implications of leaving the EU. “There will be continued social instability, and England’s position in the global trade market is at risk of deteriorating,” said Lacey, who suggested that financial services companies could potentially relocate from London to Edinburgh, if Scotland managed to stay in the EU as an independent country.
Here you can see a full overview of delegate voting results from Expert Investor Belgium.
And click here to see a slideshow of photos taken at the event.
