At True Potential, we’re delighted that our friends in Scotland have voted to remain a part of the United Kingdom.
We know that many people have been anxious about the independence referendum and how it might impact investments, so we asked our fund managers for their reaction to the result.
7IM released the following statement:
“Although our position was that we thought it more likely that Scotland would stay part of the UK, we knew that it was not a foregone conclusion, and so gave consideration in the portfolios as to what would happen in the event of a yes vote.
“One of the measures taken was to maintain an unhedged US Dollar position; offering a degree of protection against a tail risk event similar to what was seen in 2008, where the US Dollar appreciated over 30% vs GBP. Earlier this month we noted that the Pound had weakened by around 6% against the Dollar since July as markets began paying attention to the possibility of a break-up of the UK.
“Now that the results are in, we feel that the Pound will start to strengthen against the dollar which could mean a small drag on performance in the very short term. We look at all possibilities and scenarios. Sometimes this leads us to give up a little performance to protect against potential downsides. We bought some insurance which comes at a premium of course, but nobody ever called their home insurance provider at the end of the year to complain that their house didn’t burn down…
“7IM is about providing an expected return in the medium to long term, without significant shocks along the way despite an uncertain world, so that the client stays invested, and their financial plan comes to fruition. Our preparation for a close Scotland vote is a practical an example of how we do this.”
Andreas Utermann, Global CIO:
“While the outcome itself is in line with market expectations and more definitive than many polls had predicted, it would be foolhardy to expect a return to business as usual.
“The most immediate ramifications are in the political sphere.
“In its last ditch bid to save the union, the UK has committed to devolving more power to Scotland which in practice may lead to a more federal configuration of government across the UK as a whole.
“We should not underestimate the amount of healing that will need to take place following the referendum: as much as the process has been cheered for igniting democratic debate, it has also proved deeply divisive within Scotland and has seen old fissures with the rest of the UK resurface.
“In time, yesterday’s plebiscite could prove to have been the high water mark for the independence movement in Scotland, which would be consistent with the Quebec referendum in 1995. This was the SNP’s greatest opportunity, aligning a public hungry for change following six years of austerity and disappointed in public and private institutions against a Westminster Government that the majority of the Scottish electorate had not voted for and a somewhat lacklustre unionist campaign.
“Elsewhere in Europe, in particular in Madrid, Brussels and possibly Rome, there is probably a collective sigh of relief. There are also lessons they will look to learn from the Scottish experience. Separatists in Europe may nevertheless take encouragement from the strength of engagement in the Scottish referendum.
“The market reaction to the result – in particular the rise of sterling – is as expected. So too is the bounce for companies with significant operations and/or headquarters in Scotland that were adversely affected by the uncertainty. Meanwhile, a number of potential investments in the UK, particularly in Scotland, that have been held up due to uncertainty surrounding the outcome of the referendum may now go ahead giving a boost to the economy.”
Schroders released the following statement:
“Scottish residents are more in favour of remaining in the EU, compared to the rest of the UK where the majority favour an exit. Overall, major disruption has been avoided and focus can now return to building on the strong economic recovery in progress.
“The Bank of England is now likely to press ahead with raising interest rates early next year in the absence of political uncertainty.”
Jason Collins, European Head of Investment Management:
“We view Scotland’s ‘No’ vote as positive news. It clearly removes the uncertainty that has been hanging over the markets, with Scottish stocks and Sterling rallying this morning, although not hugely.
“Attention now though will quickly move on to how Britain as a whole is doing and politics will remain an issue in the run up to May’s election. We don’t think Cameron has come out of this whole process looking particularly strong which will have a bearing on the election and important issues ahead – on economic policy and our relationship with Europe in particular.’
Toby Nangle, Head of Multi-Asset at Threadneedle, believes that Scotland’s decision to remain within the UK has avoided market disruption.
‘I am relieved,’ he said. ‘I am very relieved personally and because of what the effects would have been on UK equities, bonds, and the currency.’
Nangle said that although Threadneedle had expected a ‘no’ vote, it ‘would have been irresponsible’ to have taken large positions on it.
‘We did not load up on sterling the night before, that would have been irresponsible,’ he said.