Regardless of what side you’re on in the Brexit debate, as an investor it’s imperative to protect your investments. We’ve seen gold prices rise in recent weeks and stocks become particularly volatile. With nobody having any idea what will happen tomorrow, let alone in the coming months, here are some ideas for providing protection to your investment portfolio from Brexit-induced fear and market turbulence. Although I believe in long-term investing and in the prospects for many of the companies in the FTSE 100, it’s still wise to consider the worst-case scenario and make sure your portfolio is robust.
Diversifying
The most sensible course of action in my opinion is to analyse your holdings and make sure there is enough diversification. This means making sure that the shares within investment funds, investment trusts, ETFs and other holdings perhaps directly in companies provide geographic and industry diversity.
Many companies in the FTSE 100 generate significant earnings overseas so these companies should be better off in any Brexit scenario. If investors fret heavily because of Brexit uncertainty, companies that are more UK-focused are likely to see share prices suffer – at least for a while. Reducing exposure to companies like these will help protect returns.
It’s worth also diversifying investments by industry. For example, defensive shares such as utilities and pharmaceuticals could well do far better in a period of fear and uncertainty than more cyclical industries such as housebuilding. It’s worth bearing this in mind when it comes to any period of market uncertainty. The other side of the coin is that once investor optimism returns, the cyclical industries are likely to bounce back stronger and have bigger share price rises. This is why I think it’s worth analysing a portfolio and seeing where the weaknesses and the opportunities are.
Investment trusts
There are three main aspects to investment trusts that I like. Firstly, there are those that look for global growth – this should shelter investors from Brexit. An example includes Lindsell Train Investment Trust and there are many others that have significant global reach and invest in the best companies across the world.
The second aspect I like is the ability for managers of investment trusts to hold reserves so that dividends to investors can be maintained during harder times. This is why, despite economic ups and downs, a good number of investment trusts have increased their payouts for decades.
Then thirdly, investments trusts can trade at a discount (or a premium) to their true value – known as the net asset value. This means an investor can pick up something worth 100p for 95p for example, assuming the investment trust shares trades at a 5% discount.
Even with Brexit shenanigans reaching new highs in Parliament, there’s no reason for investors to fret. Investing with a long-term mindset is about working through periods of volatility and fear such as now and positioning a portfolio so that it thrives, regardless of the wider economic picture.