A survey of portfolio managers by the CFA Institute has identified US president Donald Trump and the French presidential elections as a bigger risk to investment strategies than the impact of Brexit.
Last year’s referendum in the UK on continued EU membership saw a 52-48 per cent split in favour of leaving the bloc, causing greater uncertainty for markets.
Since the vote in June, sterling has plunged against the dollar and other currencies as investors have become increasingly cautious about the prospects for the UK outside of the EU.
Performance of sterling vs dollar over 1yr
Source: FE Analytics
In a survey of its members, the CFA Institute found a mixed reaction to the ‘Brexit’ vote among portfolio manager members of the professional body.
Around a fifth (22 per cent) had positioned their portfolios more defensively, compared with just 7 per cent who had turned more aggressive since the result.
However, the majority of portfolio managers (71 per cent) surveyed have left their portfolios unaltered since the vote.
Indeed, the political risk with the biggest impact on investment strategy was the election of Donald Trump as US president, which was highlighted by 67 per cent of portfolio managers.
The French presidential election, which could raise questions over the future of the EU if populist candidate Marine Le Pen were to win, was the second biggest political risk, highlighted by 10 per cent of respondents.
Brexit and the risk of reduced trade or restricted market access between the UK and EU was judged to have the biggest impact on investment strategy by just 7 per cent.
Among global CFA Institute members, 36 per cent thought the Brexit uncertainty would remain in markets for six to 12 months, while 39 per cent thought it would last up to two years. Half of UK members, however, thought uncertainty would last for more than two years.
The survey also revealed that global members believed further exits were the most likely consequence of Brexit by 2026, with 59 per cent noting the increased likelihood.
Foreshadowing renewed calls for an independence referendum by Scottish first minister Nicola Sturgeon, 53 per cent thought UK fragmentation with Scotland leaving the union was a likely outcome in the next 10 years.
Broader concerns about the current geopolitical environment were also highlighted in the survey, with many turning bearish for the outlook in the coming years.
According to the survey, 70 per cent of total respondents thought returns would be negatively affected by the current geopolitical environment over the next three to five years.
The remaining 30 per cent of respondents were split equally between those who felt returns would be positively affected and those who thought they would be unaffected.
UK investment professionals were a bit more bullish about the outlook, with 67 per cent believing returns would be negatively affected, while 18 per cent thought the outlook was more positive.
Europe ex-UK members were more bearish, with 76 per cent of respondents expecting a negative impact and just 11 per cent predicting a positive impact.
The findings come as rumours over the imminent triggering of Article 50 – the mechanism for exiting the EU under the Lisbon Treaty – are being circulated. However, it is now believed that the British prime minister Theresa May will wait until the end of March before initiating Brexit talks.
Following the referendum result, the blue-chip FTSE 100 index has climbed steadily as investors seek refuge in more internationally focused large cap stocks.
Performance of FTSE 100 over 1yr
Source: FE Analytics
However, with negotiations yet to take place and little clarity on what outcome is likely to emerge, investment professionals seem likely to remain cautious.
Paul Smith, president and chief executive of the CFA Institute, said: “The current state of political uncertainty ahead of Article 50 being triggered is having a clear impact on investment professionals’ market expectations.
“That said, it is important to remember that geopolitical risk is by no means new: apart from the 20 years following 1989 and the fall of the Berlin Wall, geopolitical risk has in fact been a constant feature of financial markets.
“It is also only one of many challenges and potential drivers of change in the investment industry.”
He added: “In this climate, it is crucial for investment management professionals to earn the trust of investors.”