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Nutmeg removes all exposure to euro in favour of cash and gold amid Brexit uncertainty

Written by: Paloma Kubiak
Nutmeg has announced it has removed all exposure to the euro with funds put into increasing cash holdings as a result of the change in sentiment in the EU referendum and Brexit polls.

The digital wealth management firm said it has made the following changes to all of its customer portfolios from today:

  • It has reduced holdings in equities in Europe and Japan, removed all exposure to the euro and cut holdings in sterling-denominated corporate bonds.
  • The funds from these sales have been put into increasing cash holdings, adding to holdings in government bonds with a long time to mature (more than 15 years) and gold.

Nutmeg said the measures are designed to reduce the risk in the event of a Leave vote, but to not “overly damage future return prospects.”

CIO Shaun Port explained that while it invests with a long-term horizon and it doesn’t attempt to time swings in the market, given the “enormity of the decision on 23rd June and two very different outcomes, we feel it is prudent to reduce risk in the short term.”

Port added that the vote is very close and much could change in the next few days but said: “Remain still seems most likely to win (betting odds put the chance at 58%) but the possibility of a Leave vote – which we believe has much bigger consequences for global financial markets – has led us to implement our plan and add more protection to portfolios.

“We have not felt the need to reduce UK equities any further, with our exposures already quite low compared to normal. The UK is already an unloved market and if, as likely, the pound crashes after a Leave vote, we expect the UK to be more in favour even with the uncertainty over any future UK trade deals, given that a weak pound will boost profits at international companies.”

Port confirmed that Nutmeg doesn’t hold any exposure to the FTSE-250 which is more exposed to UK growth. And on its decision to increase bond holdings, he explained that it’s based on the “probability that long-dated bonds will perform very well if forecasts for UK growth are downgraded and gold prices will rise if the perceived risk in global financial markets goes up.”

What will happen after the vote?

Financial markets hate uncertainty, so a vote to leave would see some big moves in markets even if the actual economic impact was small, Port said.

“We would expect a big fall in sterling – likely more than 10%.  This would be beneficial for higher risk portfolios which have lots of exposure to the US dollar.”

Nutmeg also expects the UK equity markets to fall quite sharply on a leave vote, which would send ripple effects through both European markets and the euro.

“Government bonds would perform strongly, as the market would price-in a 100% certainty of a cut in the Base Rate this year, and start to speculate that rates could actually go negative as they have done in the EU, Sweden, Denmark and Japan.”

Turning to a Remain vote, he said the likely response would be a stronger pound and, to a small degree, higher equity prices. “We do not expect much of a sell-off in bonds given that prices are being driven to a large extent by international factors,” he said.

Once the referendum is out of the way, Price said Nutmeg is likely to make more changes to portfolios “whatever the outcome.”

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