Guest column: Colin Lawson – Brexit boom for sterling

Colin Lawson, founder and partner at Cheshire-based financial planning firm Equilibrium Asset Management, says a weakened pound has created a Brexit boom for sterling investors who have moved their money overseas.

Across large swathes of the country the picture painted of the post-referendum landscape has been pretty gloomy. Volatility, uncertainty and a falling sterling have become buzzwords in a depressing game of post-Brexit bingo.

Yet there is some positivity to be gleaned from the falling value of sterling precipitated by Brexit. It is, after all, a two-sided coin.

Much of the bad news we’ve been consuming in the wake of the referendum result has actually been good news for markets, and especially so for savvy investors whose investments have received a Brexit boom.

We’ve heard a lot about how a depreciation in the value of sterling has cut the spending power of Brits holidaying abroad while also increasing the competitiveness of British exports.

One of the results of the falling pound that has not received very much attention at all, however, is the currency boost it has provided for sterling investors who have taken advantage of overseas opportunities since the vote.

If we look at the period from June 23, when Britain voted to leave the European Union, to August 1, we can see the US’ main stock market, the S&P 500 grew 2.83%.

However, a sterling investor tracking this index would have gained 15.32% during that period. This is because the value of the pound against the dollar fell around 11% in that period, so investors received a boost from the fact that their fund had grown and also because the dollars they used to buy into the fund have increased in strength against the pound.

It’s a trend not isolated to the US alone. In Japan, where the Nikkei 225 rose 2.45% in the same period, sterling investments provided returns of 18.63%.

So it’s clear that a falling pound has created interesting opportunities for investors.

With UK interest rates projected to remain at no higher than 0.5% until 2020 there is also a possibility the currency effect we are currently seeing could be amplified further if US interest rates rise, making a further dent in the value of sterling.

The big challenge for investors will come in trying to pinpoint the best time to exit those markets.

These developments are particularly interesting given the poor returns available on cash ISAs and savings accounts, indeed First Direct slashed its savings rates just this week following the Bank of England’s decision to push its base rate down further to 0.25%.

Equities have been touted as a more attractive investment for savers seeking higher returns, perhaps in light of the fact that investments in the FTSE 100 since 1996 have yielded an average 10-year return of almost 70% when dividends were reinvested.

Given the evidence we have to hand, I don’t believe that volatility in financial markets post-Brexit needs to deter savers from discounting them as an investment option.

The first rule of investment is buy low and sell high – and investment is most effective when pursued as a long term strategy.

Investments are made largely on the basis that, over the long term, money invested in the stock market provides stronger returns than when kept as cash. It’s not a new idea – and there’s a great deal of truth behind that sentiment.

While there is certainly cause to exercise caution in our new post-referendum reality, the key for those looking to invest is diversification, which can ensure that any short-term potential portfolio damage is limited. As the old adage goes – it’s never wise to have all your eggs in one basket.