Britain’s surprise vote in favor of leaving the European Union last Thursday caught markets off guard, and the move has left many clients pondering the implications for their portfolios. Most advisors are telling clients to stay the course, with nearly six in 10 saying they haven’t changed clients’ positions in the markets as a result of Brexit, according to a flash poll conducted by WealthManagement.com. But of those who are making changes to clients’ portfolios, many are viewing it as a buying opportunity.
“As we navigate the turmoil, we'll be looking for opportunities to exit more fully valued investments and put the proceeds to work in stocks that might become excessively undervalued due to near-term fear and uncertainty,” said Ludo Thomasson, director of wealth management at Ensemble Capital Management, in a write-in comment. “But we'll make those investments without any false optimism that the EU's issues can be wished away. Both the UK and the EU have a very tough and uncertain future ahead of them.”
Of those advisors who made changes, nearly 58 percent indicated that they bought domestic equities; 45 percent said they bought international equities and nearly 30 percent invested in U.S. corporate fixed income. Nearly a quarter of advisors purchased commodities. Forty-two percent of FAs said they decreased their cash holdings, while about 27 percent increased allocations to cash.
Meanwhile, allocations to international corporate debt, international sovereign debt, national sovereign debt and alternative strategies remained largely unchanged.
“The market downturn that resulted from Brexit is an emotional reaction and not based on fundamentals,” wrote Karl Van Reusen, financial advisor at Edward Jones. “I am telling clients that nothing has really changed internationally. Emerging markets is still presenting a buying opportunity.”
Of all advisors — both those who made changes following Brexit and those who did not — about 57 percent expect to adjust client portfolios if the markets continue to decline.
“In my narrative I outlined the posture I am anticipating going forward, that being, we may lighten up on bonds due to their rise and take some profits, take profits in gold, and look for new holdings as opportunities present themselves in dividend-rich companies whose share values have declined as a result of the news,” said John Maffei, chief investment officer at MFM Capital Management.
Advisors received a mixed reaction from clients to Brexit, with many remaining calm, not panicking, and others responding nervously to the news.
“Fear and trembling,” wrote Ronald Finke, president and chief investment officer at Stewardship Capital. “One client of 17 years (who is up about 170 percent net in that time) wants to cash in all the chips and put the money under the bank mattress!”
“My clients are delighted to have an unexpected buying opportunity, especially those who had recently committed significant new cash balances,” said Steven Jon Kaplan, CEO of True Contrarian Investments.