June 24, 2016

The results are official: voters in the UK have elected to leave the European  Union. The consequences of this referendum (which we refuse to call a “Brexit”) are yet unknown, and Google search evidence indicates that citizens didn’t even understand what they were voting for. The “Leave” and “Stay” campaigns simply conjured up sentiment of an independent or integrated Britain without actually educating the people on the issue! Sounds like politics as usual. To that point, in the weeks leading up to the vote, we could not find any clear, concise, meaningful document or article that described the effects of leaving the EU… not even on the BBC website. 

Now that the votes have been tallied, the issue, it seems, is not the effects that Britain will suffer, but the uncertain fate of the rest of the European Union. As one editor on MarketWatch put it, “it is very hard to be the first person to leave a party. It is a lot easier to be the second” (Matthew Lynn, 6/24/16). Nations that have been disproportionally hurt by the euro (Italy, Spain, Portugal, Greece in particular) now have precedence for holding their own referendums on exiting the currency union.

Where do we go from here? The UK is not a major contributor to world GDP, but the EU is. If indeed the Eurozone does crumble, the bloc will face years of uncertain conditions; stocks tend not to fare well in the face of uncertainty. Domestically, though, nothing has changed and fortunately the majority of our holdings are located in the United States. In the words of Dr. David Kelly of JP Morgan Asset Management, “did anything that happened overnight cause US companies to be devalued by 2-3%? No!” (conference call, 6/24/16).  For this reason, we are not inclined to take any immediate rash actions today. However, a slew of other conference calls with analysts and thought-leaders today and next week will provide us some clarity to plot a course moving forward, and we will keep you informed of any changes we decide to make.

We believe sending brief communiqués like this are the most effective way to disseminate important and fluid developments quickly to all of our clients. However, we also know this may not satisfy all of your questions. Please do not hesitate to reach out if we have left anything unanswered.