This news service carries a range of views from wealth managers on the Brexit process.

Industry figureheads have spoken to this publication after UK Prime Minister Theresa May yesterday triggered Article 50, the official papers that allow a country to unravel ties from the European Union.

Talks about the terms of exit and future relations can now commence as the UK has formally notified the EU it is leaving. The official timetable allows two years for negotiations. If all goes smoothly, Brexit should occur in March 2019.

In the months ahead, as details emerge on the exact nature of how the UK will be positioned going forward, this news service will continue to gather views from wealth management sector practitioners on the most suitable strategy to adopt. 

On the following pages is a collection of opinions from the sector. These commentaries range from the macroeconomic side through to industry structural issues. For those who wish to add their own, please email the group editor at tom.burroughes@wealthbriefing.com. 
 

Invesco Perpetual:

European Equities Team:

Britain’s pre-announced, long-anticipated decision to trigger Article 50 and formally start the Brexit process has come as a surprise to nobody. Judging by the market’s reaction so far, it has been a non-event.

The focus now shifts to the negotiation phase. Over the next two years, observers and market participants will be searching for hints and looking for clues about the nature of the relationship between the UK and the EU.

Markets do not like uncertainty, so some volatility could be expected on either side of the Channel during negotiations, as contentious topics are tackled.

The views we held at the time of the referendum result last year remain true today.

From an economic perspective, we expect a continuation of the eurozone recovery, underpinned by an accommodative monetary policy, less austerity, a more favourable foreign exchange rate and some structural reforms.

Europe has proven remarkably resistant to global macroeconomic turbulence and its recovery, being largely driven by domestic demand, is hard to derail.

The European Central Bank also remains ready to act and able to counter any near-term pressures caused. Therefore, we see less risk of lasting damage to the rest of Europe from the Brexit process.

On the political front, we think it is too simplistic to assume that a Brexit-type vote is easily replicable in Continental Europe. The recent Dutch election is a very good example, where the pro-EU and right-of-centre VVD party won the largest number of seats in the lower house, and a number of other mainstream pro-European parties of various political hues did well. Geert Wilders’ anti- EU and far-right PVV failed to make a meaningful breakthrough.

Rising radical politics in some European countries does not necessarily mean radical governments in power. The mechanisms by which radical parties can actually turn into fully‑fledged governments, call and implement referenda to exit the EU are often just not there. There are significant legal and political hurdles in each country which make referendum risk much smaller than in the minds of many people.

As we go through the European electoral season and as the political landscape becomes clearer, the political risk premium on Europe should fade in our view, raising new investment opportunities for active stock-pickers to exploit. The more potent driver to long-term equity market returns is not politics, but rather, economic and corporate fundamentals – and to us these look refreshingly sound.

UK Equities Team:

As the UK government begins its formal Brexit negotiations with EU members, we remain optimistic about the road ahead. We have a dynamic economy which has adapted to change before – and is now primed to adapt again to whatever change is thrown at us.

Sterling will remain a key instrument to watch over the near-term, as movements in currency will continue to impact the extent of the wider market response.

Political events in the US and Europe have added an additional twist to the outlook for major global currencies, and we have observed the market thinking more carefully about currency implications.

Ultimately, we don't manage money on a three-month view or a six-month view but in the best long-term interests of our clients. We would urge investors to recognise that we will endeavour to make considered judgements on the basis of the facts as they emerge. We will not be making changes to the methodology we have used for many, many years to build our portfolios, nor departing from the processes we deploy to analyse, understand and respond to investment opportunities across UK equity markets.
 

M&G:

Steven Andrew, multi-asset manager:

The negotiations around the withdrawal of the UK from the EU have the potential to be the most significant structural change to the UK's economy in a generation. Then again, the economic impact might be so small, we may not even notice. The degree of clarity around these issues is very likely to stay murky for some years yet, so rushing to judgement either way – from an investor's perspective – is not a good idea.
 
Going into the UK’s EU Referendum last June, there were great prognostications of doom. The data shows that that simply has not happened and not much has changed economically since the vote to leave. We have had a labour market that has continued to grow, the unemployment rate is close to 40-year lows, while average earnings growth of households actually accelerated in the second half of the year. Therefore at this stage, there really is not any tangible evidence that there has been a meaningful response from the underlying economy.

Historically there have been many political movements which have had a lasting impression on markets over the long term. Events such as the fall of the Berlin Wall and the establishment of the euro as a single currency represented substantial shifts in the underlying regime driving economies and markets. Politics is crucial and it is durable. It is very important and will never go away. However that does not mean that the market should be ebbing and flowing and listening to every utterance, whether it is going to be a hard or a soft Brexit, and what the probabilities of those things are going forward. It is more important to get into the underlying value of these assets and see what is truly driving things.
 
The market likes to have its attention pulled here and there, and the past 12 months has been a good example of political noise muddying the water. When evaluating political risk, investors need to focus on two things: does this change the underlying value of my investment? Then crucially, how much can I try and deeply understand about this more than the market can? As interesting and important as many of these topics are, investors need to be careful that they are not straying into the grounds of forecasting asset prices or what is happening in politics because we simply do not know.

When evaluating asset prices investors need to assess what the market currently believes and what the risks are, and where the potential surprises could come from. If we know one thing about the future, it’s that it’ll be surprising in some way. However, when we look at how the UK and European markets are currently priced, current market expectations are still anchored in a pretty bleak place from a fundamental perspective, so we see more upside risk than downside.
 
Equity markets have recently delivered strong returns (again showing that even if you forecast events correctly, the price response may be something else entirely) but unlike the US and other parts of the world this has not been the result of a re-rating.
 
Profits have grown faster than prices, meaning that many sectors have actually got “cheaper” while going up. The extent of this will be driven by the rebound in commodity prices and sterling declines, but the table below shows that even for the more domestically focused FTSE All Share the trend is relatively broad-based.

There are a lot of metrics that investors can use to evaluate the strength of underlying economies, but wage growth data will be key for demonstrating future growth in the UK and eurozone. If wages start to grow faster, the central banks have already told us they will come in and raise interest rates. That will be a bit of a jolt to people’s expectations. Everyone is expecting slow and steady and the market has not really priced for an upside there. This is the key point of vulnerability from a policy perspective and should be a good indicator as to where interest rates are going.

It is hard to believe that anybody knows how Brexit negotiations will resolve themselves, or how the world will look when they finally do. Rather than construct our own "outlook" to compete in the game of forecasts, the more useful observation from an investor’s standpoint is to identify the scope for surprise. Both economic forecasts and asset prices imply a more gloomy view about the UK than was initially the case even immediately after the vote, despite a factual improvement in fundamentals. This should be encouraging for investors; when markets suggest more weight is being given to forecast than facts it often means the scope for surprise is higher than normal.
 
However, the impact of Brexit will be very real. Suggesting the environment will resemble the facts as they stand today is just as much of a “forecast” as a pessimistic view on these impacts. Investors need to assess the sentiment of markets and whether, given the range of possible outcomes, asset pricing suggests such a degree of pessimism that they will be well rewarded if outcomes are less bad than expected, or even positive. In our view there are signs of this pessimism, but it is not extreme. We need to expect that attention on Brexit will wax and wane in the coming years and be prepared to respond as it does rather than getting caught up in the noise.
 

Lombard Odier Investment Managers:

Salman Ahmed, chief investment strategist:

As Prime Minister Theresa May set the Article 50 exit process in motion, investors should be mindful that from this point onwards there will be less smoke and mirrors and an immediate reduction of uncertainty surrounding Brexit. Going forward the UK and EU will need to be clearer on what they want and where compromises will occur.  
 
Investors should be braced for some sterling volatility but in my opinion it will remain range bound over the next few months. Article 50 has been largely priced into the pound as reflected in extreme shorting positioning and I believe that any negative impact from negotiation noise will be offset by the Bank of England’s hawkishness as inflation rises further.
 
Looking ahead, initiation of the Brexit process indicates the reconfiguration of the EU has started. The bigger question remaining for me is whether the EU chooses to take the role of conciliatory or confrontation as talks progress.
 
We should all keep in mind that the drivers behind the rise of populism and indeed Brexit are prevalent in many other EU member states, not just the UK. If the EU can survive a crash free 2017 – politically and economically - then I think it gives the authorities precious time to arrest the rise of dysfunctional populism. In the meantime, all eyes are now on France, which is increasingly looking to go the Dutch way with polls suggesting rising support for the pro-EU candidate.
 

UBS Wealth Management:

Today won’t be remembered as a pivotal moment in the way 24 June will. Volatility in the equity market will be limited and temporary, with economic and earnings growth the key driver of performance over the long term.
 
Investors should respond to the uncertainty of the negotiating period with caution not chaos. We expect the pound to recover towards its long-term fair value if the negotiations proceed collaboratively and constructively. 
 
If the mantra “no deal is better than a bad deal” is followed, it is entirely feasible we could see the hardest of hard Brexits. But it is too early to jump to this conclusion. Posturing – on both sides – is always a feature of any tough negotiations.