Here’s what happened:
Yesterday, UK voters elected to leave the European Union (EU) – the “Brexit”. As a result, market volatility has increased sharply. While the “Brexit” referendum won last night, the process of leaving will be long and arduous. Many are predicting that it will take more than two years. So the sell-off today is more so about the uncertainty that comes with “now what!?!”
Expect continued volatility and wild swings as it will take time to sort all of this out, but long term we feel that this has the potential to create extremely attractive buying opportunities. There’s no real change in the way the United States will do business, and, in reality, while there will be some growing pains, the UK was really just a fringe member of the EU anyways. It had its own currency, immigration laws, and a laundry list of exemptions from EU rules.
Here’s how our accounts are positioned:
Over the past few months we have been raising cash across accounts by cutting equity exposure as the stock market hovered around all-time highs. We felt that the downside risk of being heavily invested in the stock market far outweighed the potential upside. While arguably “early”, we did this in anticipation of a pull-back. With the “Brexit” vote, it appears that we may be getting the decline and potential entry point that we have been waiting for to put that cash to work. As the next few months start to provide more clarity, we plan to capitalize on attractive investment opportunities created by the decline. In addition to lower equity exposure, we are well positioned within our bond and alternative allocations.
Important things to remember:
- Uncertainty about what’s next will continue, therefore, so will volatility.
- We’ve been raising cash and are more conservatively positioned than we have been in years.
- This news and the subsequent downward move has the potential of creating extremely attractive buying opportunities to put that cash to work.