EU poll uncertainty will unsettle investments

David Hill INLT 45-099-PSB
David Hill INLT 45-099-PSB

So we now know when the UK will vote to stay in or to leave the European Union.

Expect a lot of spin, forceful opinions and contradictory information as politicians posture and pontificate in the run-up to June 23.

While no one knows what the outcome will be at this stage, what we do know is that financial markets do not like uncertainty and the coming months will bring plenty of that. So expect swings in share prices both up and down as markets try to digest the information and model the possible outcomes.

Many experts feel that the long term effect on markets will be relatively neutral, no matter what the outcome, but financial planners will be advising that their clients reduce exposure to the UK market until after the election. With interest rates likely to rise within the next 12 months, gilts – a traditional safe haven in volatile times - are likely to start to fall in value. Gilts have produced great returns in recent years as interest rates have stayed low for a lot longer than expected, but significant falls in their value are very likely when rate rises begin.

So where should investors go to diversify? Gold has been performing very well, with the CF Ruffer Gold fund up over 24% in the last month. Every portfolio should have some exposure to gold, as it is one of the asset classes that investors turn to when volatility increases.

Commercial property funds are also a popular alternative to shares, with rental returns delivering between 3-4% per annum and capital growth on top of this in most years.

Unfortunately, we often find that most investment and pension funds that we analyse are almost entirely made up of UK shares and frequently UK gilts are used in an attempt to reduce risk. So have a look at what is in your investment or pension fund and if it is mainly UK shares and gilts, then it may be time to make some changes.

David Hill is a Chartered Financial Planner and Independent Investment Adviser at Hills Financial Planning, 15 Agnew Street, Larne. He can be contacted on 028 28276814, email david@hillsfinancialplanning.co.uk or see www.hillsfinancialplanning.co.uk