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Hamish Douglass

A manager's view

20 June 2016

Hamish Douglass of Magellan Asset Management believes a UK exit from the EU would take several years – but argues his UK holdings are secure.

For politicians, a vote to leave the EU would surely add plenty to the in-tray. For investors concerned to protect capital, however, the real work comes before the vote, as they analyse the possible impact on their holdings.

Inevitably, some of that work means considering the broader economic and financial impact of an exit – both in the UK, and beyond.

“We are not overly concerned about the potential global impacts if the UK votes to exit the EU – there will be invariably short-term market volatility if Brexit occurs. However, it is very unlikely to cause larger systemic issues,” says Hamish Douglass of Magellan Asset Management. “The ultimate impact on the UK of leaving the EU will depend upon the nature of any trade agreement that would ultimately be put in place between the EU and the UK. This would not be settled for a number of years.”

While the process of renegotiation is regularly cited by investors as a key risk factor, others are more worried about the impact an exit might have on the EU, potentially creating financial uncertainty, which might spill over into the eurozone.

“There will be a lot of debate as to whether Brexit would trigger greater instability within the eurozone,” says Douglass. “We do not believe Brexit will pave the way or make it easier for a eurozone member to leave the euro as this is completely different, more complex and higher risk than the UK leaving the EU.”

Having considered the broader financial and economic implications, Magellan was then able to return to the bread-and-butter work of looking at the individual stocks, and at how they might be affected by a British exit.

“From a portfolio perspective, the major possible impact will be short term and is most likely to be due to a weakening of the pound,” says Douglass. “We own two UK-domiciled investments – Lloyds Banking Group and Tesco. We do not believe either of these businesses will be materially impacted either way – in fact, Tesco may benefit from a weakening of the pound as its offshore operations would be more valuable if the pound was to weaken. We have [therefore] not taken any proactive steps by changing our investments in Tesco or Lloyds around the possibility of Brexit.”

Hamish Douglass is a manager of the St. James’s Place International Equity Fund. The opinions expressed are those of Hamish Douglass and are subject to market or economic changes. This material is for information only and is not a recommendation or intended to be relied upon as a forecast, research or advice. The views are not necessarily shared by other investment managers or by St. James’s Place Wealth Management.

Please be aware that past performance is not indicative of future performance. The value of an investment with St. James’s Place may fall as well as rise. You may get back less than you invested. Returns on equities cannot be guaranteed.

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