Institutional investors to remain focused on the long term

The decision of the British public to support an exit from the European Union has come as a surprise to the markets. Right up until the voting opened, the opinion polls and even the betting odds favored the UK to remain in the EU. Markets do not like surprises and thus the volatility in both stock and currency markets this morning were to be expected.

The world is now digesting this news and the potential implications for asset classes, in the short term, and in the longer term. Given that we are in uncharted territory, it is possible that the volatility could last for some time. The long term impact on the UK markets, the rest of Europe and the rest of the world will only unfold over the next few months and years.

Shocks like this can lead to unease and concern. As always it is important for institutional investors to look through the noise and remain focused on their long term objectives. Short term volatility, while uncomfortable, can also lead to buying opportunities for asset managers.

Old Mutual Multi-Managers economist, Dave Mohr, has said that this move has undoubtedly drained risk appetites from global markets, introducing considerable uncertainty. However he does not feel that this will fundamentally change the outlook for the global economy.

Old Mutual Investment Group’s chief economist Rian le Roux, warns that this represents a shock to an already fragile global economy. The extent and duration of the impact on the world economy will be dependent on policy-makers actions globally. South Africa will probably not escape the negative impact of this decision which could further undermine SA’s growth prospects. The full impact will only be clear over time.

This is a valuable reminder of the importance of investing in well diversified portfolios as market shocks and their impact on different assets cannot always be predicted or avoided.

Your investments are managed by skilled and experienced managers who will continue to make investment decisions based on the long term fundamentals and it is important not to let emotion lead to a decision that may harm your long term strategy.

Clients invested in market-linked portfolios will experience the market volatility but can be reassured that the manager’s position these portfolios with a longer term view. Clients invested in smoothed bonus portfolios will be protected from the market volatility by the smoothing mechanism employed by these funds.