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The UK Votes Exit

06/30/2016

Vontobel Asset Management is subadviser to the Virtus Emerging Markets Opportunities, Foreign Opportunities, Global Opportunities, and Greater European Opportunities Funds.

The initial reaction to the UK’s vote to exit the European Union (EU) has been surprise, markets sharply risk off, the Prime Minister has decided to stand down, the head of the British opposition Labour Party is being challenged, and there has been an avalanche of comments as to why the vote is bad. With 52% of the UK referendum voting for an exit from the EU, British voters have done what no politician we can think of, would have been capable of. One of the central roles of democracy is to act as a pressure valve when a significant proportion of the population is unhappy. Something was deeply troubling a large portion of the public, and almost no one could or would lift a finger. The UK/EU structure had left almost no ability to make changes to ease the pressure building up on a number of issues, particularly controlling the rate of immigration.

This paper will focus on how our portfolios are positioned as we enter what is expected to be a volatile period. The challenges ahead for the UK are not necessarily the same as those faced by UK companies, as they have the ability to shift production overseas if needed to overcome future barriers.

We feel our portfolios are well placed to weather the uncertain period ahead. Our focus on long term investments into stable and predictable growth companies has kept the earnings underlying our Global, International and European equity portfolios well diversified, relatively well insulated from cyclical swings, low direct exposure to the demand from any single EU market, and a high weighting to Consumer Staples companies.

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Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.