As Expert Investor noted last week, many European wealth managers were keeping a relatively large share of their portfolios in cash ahead of the Brexit referendum, although most of them hadn’t expected the British people to actually vote to leave the EU.
Jaap Bouma (pictured right), senior portfolio manager at Optimix, a Dutch wealth manager, was one of those investors who had relied on the bookmakers’ odds. So he was caught by surprise on Friday morning. But thanks to his large exposure of 20% to US Treasuries, which actually turned out to be a better Brexit hedge than cash, Optimix’s neutral portfolio was down only 0.8% on Friday.
“The large gains in US Treasuries prompted us to sell 50% of our position late on Friday,” Bouma told Expert Investor.
While the vote to Brexit came as a surprise to most fund buyers, the way in which asset classes responded didn’t. UK and European equities fell sharply, while prices of government bonds, and to a lesser extent investment-grade corporate bonds, rose.
The sharp fall in equities potentially opens up some opportunities though. “There could be some opportunities for contrarian buying in equities, like in February,” says Claes Roepstorff, head of balanced portfolios at Nordea AM in Copenhagen. “We haven’t immediately made changes to our portfolios though, as volatility is still way too high.”
“Investors shouldn’t think they can sit out the volatility and wait until there is absolute clarity before coming back in” - Dan Kemp