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How to trade ahead of Brexit vote

It's a jittery week for investors with an interest in the UK. Photo: Shutterstock

It's a jittery week for investors with an interest in the UK. Photo: Shutterstock

There’s no beating around the bush – the primary goal behind investing is to make money, from hard earned money.

If there weren’t any prospects of making money, I shudder to think how many investors would be reluctant to be putting money to work, or rather at risk.

Clearly, the purchase price and sale price of an investment (asset) are amongst the most important considerations an investor needs to pay particular attention to, as these two factors (amongst others such as income generated from an investment such as a dividend or a coupon payment) will clearly determine the extent of profit or loss on an investment.

Therefore, market timing is key, both when purchasing as well as selling an asset. For those investors who invest for the longer term, market timing is important, whilst a greater emphasis is placed on market outlook. For the seasoned investors that base investment decisions on short-term market movements, the entry point is even more critical.

Markets are forever changing; there is always a key event or economic data release which has the potential of derailing market sentiment, momentum and direction, both on the positive and the negative. This time round it’s the Brexit referendum, the outcome of which is expected to result in sizeable market movement once the result becomes official.

Asset managers and investors have been closely following and monitors polls which, although intended to provide an indication of the outcome of the referendum, have in fact increased uncertainty, as the percentage of undecided voters remains particularly high with large swings in either direction. This has been also reflected in the recent moves as witnessed by the VIX, the volatility index, which itself saw large moves – volatility increased when polls indicated Brexit was likely (not a market-friendly outcome, let’s face it), only to retrace to lower levels of late when polls indicated that the “remain” vote could possibly have an edge on the 23 June vote.

What’s my point really? A couple of weeks ago, during an internal strategy meeting, one of my colleagues suggested that, at this juncture, it would be opportune to take a prudent approach towards investing, particularly as far as retail clients are concerned. With the outcome of the 23 June vote still uncertain, and volatility expected to remain elevated heading towards D-day, it was agreed, following a thorough analysis, to advise against participating in the market, given the prevalent market conditions.

As stated above, market timing and the purchase price is key. Brexit is a market moving event, no doubt about that.

The strategy team, of which I form part of, decided that the opportunity cost of missing out (by delaying purchases and risking the market rallies upon a victory by the “remain” camp) is less than the potential downward price movements we could witness should the Brexit vote be successful. It is a kind of way of assisting clients in timing their investments given the volatile and uncertain scenario. True, we could get the call wrong, but it’s the cost of providing a service, in the best interests of our clients. I don’t think we’d be at fault if a client misses out on a 3-4 per cent market rally, but I would expect or hope for a tap on the back (or two) if we would have managed to prevent a client from seeing his 1-2 week old investment heavily in the red after merely a few days.

Disclaimer: This article was issued by Mark Vella, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

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