A Brief Note on ‘Brexit’

Last night we all learned of British citizens’ historic vote to leave the European Union. Markets do not react kindly to surprises and this was no exception. In Asia, investors watched the results unfold live and markets sank, with Japan particularly hit by a soaring Yen. The Stoxx Europe 600 Index sank 7% at the close of trading. The US markets are down around 3% as the US Dollar rallied against major currencies (minus the Yen). Gold and US treasury bonds also soared in reaction. By far, the most damage was inflicted on the British Pound which plummeted more than 10%, a record by 6%, back to levels last seen in the mid-80s!

So, how has all this turmoil affected your investments with Vertex One?

Today the markets reacted emotionally to an unexpected outcome and beyond Europe things will likely settle in the coming weeks (the EU exit doesn’t occur until 2018 or 2019). Although we did not (and do not) position portfolios around political votes, we did enter the referendum with natural hedges to a “Leave” result. Most importantly, your funds have sizeable unhedged US dollar denominated investments and the US Dollar is a large benefactor of market turmoil, being the safe haven asset of choice for investors. The Canadian dollar weakened against USD with oil falling and this offset some losses in the portfolios.

In the Vertex Fund and Vertex Growth Fund, an outsized position in Franco-Nevada warrants (a gold royalty company) was especially helpful as gold’s price soared over 5% sending the warrants up over 25%. This buoyed these funds to a slightly positive return for the day. The Value Fund and Vertex Managed Value Portfolio hold a basket of gold and silver stocks which also aided the portfolios to finish down less than global markets. The Vertex Enhanced Income Fund was also down less than markets as the bond portfolio was relatively stable and it has small USD position related to the equity portfolio.

The Vertex Arbitrage Fund has exposure to neither Gold nor USD but was down slightly for the day with a mild reaction in deal spreads. We do not hold any deals with vulnerable exposure to Britain or the EU and do not anticipate significant impact to the portfolio as the result of this vote.

Although this marks an historic event in global politics, the frenzy will recede into the background. This is not the type of event to consider altering an investment portfolio or plan over.

As always if you have any questions or concerns, please feel free to call us.

Until next time…