Fund managers are increasingly apprehensive about the prospect of a ‘Leave’ vote in the European Union referendum – though they have a variety of strategies in place to deal with it.
Derrick Dunne, chief executive of Sanlam Four, a boutique manager with £3.3 billion under management, said: “Generally our fund managers are surprised that Leave has jumped into such a strong lead. The overall view is still one that we will Remain, but I’m not quite sure what that’s based on any more.”
Some in the sector, however, are more confident that Remain will carry the day, despite the rise in Leave’s polling scores. Richard Buxton, chief executive of Old Mutual Global Investors, said: “I have always believed that the British people will vote to remain in the European Union and I continue to do so. I believe it will be a comfortable win, not a marginal one.
“When people are in the polling booth, they think differently to when they are responding to a pollster. They will think of the damage which could result from leaving. They will vote to stay.”
In general, managers are not implementing crisis measures for the morning of June 24, though many will be in the office early to gauge the result and reaction to it.
Maximilian Anderl, head of concentrated alpha at UBS in Zurich, who trades long/short equities, said that the Swiss bank had taken measures such as a ban on holidays and that order generators might have to stay in London overnight. He said: “Tensions can be felt. But I doubt there will be a lot of room for trading [because] the markets will adjust relatively quickly to the news.”
Fund managers at Schroders will find themselves being quizzed by BBC reporters on market reaction to the vote – the asset manager has agreed that its Gresham Street office will be an outside broadcast location for the broadcaster on Friday morning.
Most fund managers are not trying to guess the result and have spent time proofing their portfolios against either outcome. Jan Straatman, global chief investment officer at Lombard Odier Investment Managers, said: “We have been running a lot of risk and scenario analyses over the past few weeks and have positioned ourselves accordingly given our focus on capital preservation.
“We wouldn’t be expecting to be making any radical changes to portfolios on Friday as a result of whichever way the vote goes.”
James Clunie, head of strategy for absolute return at Jupiter Asset Management, has assembled a long/short basket of Brexit-sensitive stocks in an effort to profit from a ‘Leave’ vote while not losing money from ‘Remain’.
His strategy involves short-selling companies with substantial UK operations that benefit from EU-wide tax planning, subsidies and tariff regimes – he cited restaurant chain McDonald’s as an example – while taking long positions in stocks that pay full UK tax and do not benefit from EU subsidies or tariff protection.
He said: “If we vote to stay, nothing should happen to this hedged portfolio, as there was no change in circumstances and the risk was not priced in; if we vote to leave, this ‘unpriced risk’ gets ‘priced’ – probably gradually, as the truth emerges.”
Patrick Boyle, founding partner at computer-trading hedge fund Palomar Fund Management, said: “We trade global futures markets and we expect that opportunities may arise and that trades may be triggered by the market movements that occur due to the vote.
“Our systems do not try to predict vote outcomes in situations like this. They aim instead to take inputs from what is happening in the markets and use that data to predict short-term moves caused when traders either over- or under-react to market events.”
Ilario Scasascia, senior portfolio manager at Harcourt, the hedge fund business of Vontobel Asset Management in Zurich, said most of the work had already been done by the end of May in anticipation of more volatility in June. He added the firm was following polls closely and had become more cautious.
Scasascia said: “Portfolios are already set. The positions are closely followed and risk management has been continuously in place.”
Igor Ojereliev, a hedge fund manager trading macroeconomic events at RGL Capital, said the referendum was the most important event in markets today. He said he would wake early the day after the vote but would not make decisions until markets opened.
He said: “I have already spent many days thinking about different trades, but I would want to assess the markets on the day to see if those scenarios would be tradeable.”
Chris Rodgers, partner and senior UK equity manager at Sanlam Four, said: “Our portfolio is probably positioned more for Remain – we have positions in domestic stocks such as banks which are having a nice bounce today [Friday June 17].
“But so many people are still undecided. The betting markets are still marginally suggesting Remain. It’s absolutely touch and go right now. Trying to trade this on a short-term basis would make a mockery of proper investment. If you have a portfolio of strong companies with good business prospects, you will hopefully be able to look through the short-term disruption.”
James Beaumont, head of the portfolio research and consulting group at Natixis Global Asset Management, which tracks sentiment among financial advisers and wealth managers, said they had begun to “polarise” on the likelihood of Brexit.
He said Natixis had found many examples of advisers de-risking their clients’ portfolios throughout April and May, in particular moving out of UK equities and property. But he added that others thought their portfolios robust or believed bookmakers’ predictions of a Remain vote, leading to “a damp squib, leaving the markets relatively unchanged”.
Additional reporting from Mike Foster