TwentyFour Dynamic Bond manager, Mark Holman, discusses Brexit, May 2016
18th May 2016
“The market won't be pretty if we have a 'Brexit'. There will be short-term turmoil, which would be interesting from an intellectual point of view, but wildly tough for an investor.”
Those are the words of Mark Holman, CEO & portfolio manager at TwentyFour Asset Management, the company behind TwentyFour Dynamic Bond, which is on the Chelsea Core Selection.
“With different people voting for different reasons, it is making it really difficult to call. What I can say though is that the upcoming vote is heavily distorting bond yields.
“Our worse case scenario is that, if we do decide to leave the EU, on the first day after the vote there is a 10% drop in the FTSE 100 due to the pent up negative factors of a 'one-off' event. In addition, sterling could fall against all major currencies and immediately go down to $1.30/£1 (we are currently around $1.44 on the 18th May).
“'Risk-free' assets such as US treasuries, gold and certain government bonds would probably rally, and the Bank of England could be forced to reduced interest rates at their meeting on 14th July. The biggest issue though is that it could be a catalyst for the breakup of the rest of the EU.
“However if we get a 'BRemain' scenario, there could be a relief rally in markets (albeit muted), predominantly led by sterling appreciating. Risk assets like equities could perform well, led by UK financials. Across the pond, the Fed could then raise interest rates on July 27th, causing US treasuries and gilts to underperform.
“In the TwentyFour Dynamic Bond fund, we have a large short position on credit default swaps, as a temporary 'Brexit' position. We also have around 10% held in cash.
“We have an equal spread across euro and sterling denominated holdings and are targeting as much euro denominated issues as possible, due to the tailwinds provided by the European Central Bank, which will start buying European corproate bonds in June as part of its monetary easing policy.”
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Mark's views are his own and do not constitute financial advice.