Investment Insights Podcast: Potential impact of the election results on the financial markets

magnotta_headshot_2016Amy Magnotta, CFASenior Investment Manager, Brinker Capital

On this podcast (recorded November 16, 2016), Amy reviews the potential impact of the election results on the financial markets. Here are some quick hits before you have a listen:

  • Historically, an all-Republican government, as we will have in 2017, has been the best scenario for markets.
  • While the policies of a Trump administration are still unknown at this point, from his positions as a candidate we expect more expansionary fiscal policy, which is bullish for stocks but more bearish for bonds.
  • The biggest concern of a Trump presidency is the impact on trade as he does have the ability to impose tariffs by executive action.

Click here to listen to the full podcast.

Source: Brinker Capital. Views expressed are for informational purposes only. Holdings subject to change. Not all asset classes referenced in this material may be represented in your portfolio. Indices are unmanaged and an investor cannot invest directly in an index. All investments involve risk including loss of principal. Fixed income investments are subject to interest rate and credit risk. Foreign securities involve additional risks, including foreign currency changes, political risks, foreign taxes, and different methods of accounting and financial reporting. Brinker Capital Inc., a Registered Investment Advisor.

The Impact of Brexit

Amy MagnottaAmy Magnotta, CFASenior Investment Manager, Brinker Capital

An overview of highlights from our Investment Team on the impact of Brexit on markets and Brinker Capital portfolios.

Key Highlights:

  • Today is largely a retracement of last week’s market action. Over the last week, the MSCI EAFE Index was up over 7% and the Russell 3000 Index almost 2% as the market anticipated a “remain” vote. We’ve retraced that rally today, but global markets are only marginally down from levels seen a week ago.
  • Brinker Capital portfolios have generally been underweight to international markets, specifically developed international markets.
  • This vote is a political event, not an economic event. It marks the coming end of the UK’s trade agreement with the EU, but the process is one that will likely take years. What it has done immediately is increased the level of uncertainty in markets. We will likely see additional global central bank liquidity and easing in an effort to support economies and markets.
  • Emotional trading can create opportunities, so our focus over the coming weeks and months will be to identify and take advantage of these opportunities.

Brexit’s Impact on Global Economies and Markets

  • The economic and political impact on the UK is decidedly negative, but the degree of which is uncertain. The currency and equity markets will be weaker in the near term while the long-term outlook is unclear given the politics involved.
  • The negative economic impact on Europe is less, but still meaningful. From a political perspective, the departure highlights the rising risk of populism and becomes another distraction for the EU from much-needed reforms. We expect a weaker euro and European risk assets in the near term; the central bank could try to cushion some impact.
  • International markets will experience the indirect effects of lower global growth and general risk aversion.
  • We do not see it as having a significant direct impact on the U.S. economy; however, a strengthening U.S. dollar as a result will be a headwind for U.S. companies with significant international business.
  • Expectations for additional interest rate hikes by the Federal Reserve have plummeted. Today, the futures curve is predicting a zero chance of a rate hike in September (down from 31% yesterday) and a 14% chance in December (down from 50%).

How Brinker Capital is Positioned in Strategic Portfolios

  • Portfolios have been positioned with a meaningful underweight to international equity markets in favor of domestic equity markets.
  • The underweight has been concentrated in developed international markets, due to concerns over long-term structural issues in their economies that have an impact on economic growth.
  • We don’t anticipate any immediate changes to the portfolios as a result of these events as we feel we were well positioned ahead of the news, and we expect to reallocate portfolios in late July.

Overall Summary

  • We think this is an extended process that will develop over the coming months and years. Today, the market is pricing in the uncertainty, but this will be a fluid and evolving process.
  • The market selloff today has been relatively orderly and largely a retracement of the gains of the last week.
  • Our portfolios were well positioned in advance of the vote with an underweight to international markets.
  • We expect the uncertainty to result in higher levels of volatility, which creates opportunities for active management.

Source: Brinker Capital. Views expressed are for informational purposes only. Holdings subject to change. Not all asset classes referenced in this material may be represented in your portfolio. All investments involve risk including loss of principal. Fixed income investments are subject to interest rate and credit risk. Foreign securities involve additional risks, including foreign currency changes, political risks, foreign taxes, and different methods of accounting and financial reporting. Brinker Capital Inc., a Registered Investment Advisor.

Investment Insights Podcast – Prospects and Possibilities of Brexit

Stuart Quint, Investment Insights PodcastStuart P. Quint, CFA, Senior Investment Manager & International Strategist

On this week’s podcast (recorded March 1, 2016), Stuart takes to the mic to discuss what the impact could look like should Britain exit the European Union (EU).

Quick takes:

  • On June 23, the United Kingdom (UK) will hold a referendum on whether to remain or exit the EU.
  • The consensus leans towards the UK staying put, but polls in recent general elections were wrong.
  • The UK has more to lose from “Brexit” than the EU, but it could also highlight other cracks in Europe.

Markets have reacted by selling off UK markets, particularly the British pound, in light of the impending uncertainty and potential adverse impact of a “yes” for Brexit. So what potential impact could there be for the UK?

  • Direct trade – the EU accounts for roughly half of UK imports and exports; potentially three million jobs at stake¹.
  • Scottish independence – Scotland is more sympathetic to the EU and could seek another referendum for their independence from Britain; they currently make up roughly 40% of UK’s GDP.
  • Multinational headquarters – could start vacating out of London; banking sector could reduce operations in UK and uproot to Frankfort or Paris, as well as Asia.

What’s the potential impact to the EU?

  • Trade – while not as impactful, a UK departure is still negative especially with tepid economic growth in Europe
  • Political risks – France elections in 2017 could see more impetus to opposition party of Marine Le Pen, which is of an anti-Europe mindset; Catalonian desire to secede from Spain could be rekindled
  • Economics – Europe’s focus on broader economic and national security issues could become complicated

Please click here to listen to the full recording

[1] Webb, Dominic and Matthew Keep, In brief: UK-EU economic relations (Briefing Paper Number 06091, House of Commons Library), 19 January 2016, page 3 accessed on www.parliament.uk/commons-library on March 1, 2016.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, a Registered Investment Advisor.

Investment Insights Podcast – April 1, 2014

Bill MillerBill Miller, Chief Investment Officer

On this week’s podcast (recorded March 31, 2014):

  • What we like: CBS’s “60 Minutes” segment on high-frequency trading; traders may have an unfair advantage on trade execution, so regulators looking into it
  • What we don’t like: Inflammatory aspect of segment saying all of Wall Street is rigged, but that isn’t the case; millisecond in time in trade execution doesn’t impact all types of investing; even with high-frequency traders, today we’re trading cheaper, better, and faster
  • What we are doing about it: Spread trades across custodians, brokers, etc.; try not to limit our trades to any one, specific entity; pleased with our order execution, but look forward to regulators taking a hard look at high-frequency traders

Click the play icon below to launch the audio recording.

The views expressed are those of Brinker Capital and are for informational purposes only. Holdings are subject to change.

Investment Insights Podcast – Unrest in Ukraine and Investment Implications

Stuart Quint, Investment Insights PodcastStuart P. Quint, CFA, Senior Investment Manager and International Strategist

Stuart joins us this week to share some comments on the developing situation in Ukraine and its impact on investors.  Click the play button below to listen in to his podcast, or read a summarized version of his thoughts below.

Podcast recorded March 3, 2014:

Ukraine’s struggles are overwhelming. Political, economic, and now military challenges confront the country. Politically and militarily speaking, the U.S. and the European Union (EU) have few tools at this time and modest willpower to oppose Russian intentions in Ukraine. And given that the ruling government is merely a caretaker for the May elections, it seems unlikely there will be a bailout package offered by the International Money Fund (IMF) any time soon. Default on existing international and local obligations appears likely in the near term.

Russia is not without its own constraints, though, as the Russian economy is directly tied to Europe. Three out of every four dollars of foreign direct investment in Russia come from Europe.[1]  The EU also remains Russia’s most important trading partner with 55% of Russian exports destined for Europe.[2]

Let’s take a look at the potential scenarios: (1) Russian annexation of the Crimea, (2) negotiated settlement with later elections that would most likely bring about a grand coalition government, probably with leanings toward Moscow, and (3) military escalation (civil war, Russian forces occupy eastern Ukraine, either of which results in a smaller Ukraine or outright disintegration as a sovereign state).

So what investment implications might this have? (1) The near term is helpful for fixed income, with commodities benefiting from any disruption of supply (oil, gas) and flight to safety (gold), and (2) negative impact most of all for European (Russia supplies 30% of European gas supply[3]) and emerging markets (mainly Russia, but also other markets with the need to import capital could suffer from currency weakness and higher interest rates demanded by investors).

A negotiated settlement involving recognition of Russian claims in exchange for a roadmap to stabilize the rest of Ukraine would reverse many of these trends.  Indeed, a similar situation occurred when Russia invaded Georgia in August 2008, but the crisis in Ukraine has potentially more serious implications given its proximity to Western Europe and that it carries a large population of over 45 million people.[4]

The views expressed are those of Brinker Capital and are for informational purposes only. Holdings are subject to change.