Investment Conundrums: Quilter Cheviot's McIntosh On Why Brexit Fears Will Be Unfounded Just Like Y2K Bug

In the run-up to the new millennium panic set in as firms worried about their computers crashing as the date ticked over to 2000, a phenomenon known as the 'Y2K bug', which could have potentially crashed the stockmarket, although these fears turned out to be unfounded come 1 January.

McIntosh, who was a founding partner of Cheviot Asset Management before its merger with Quilter in 2012, said the current climate of Brexit unknowns echoes this unnecessary panic as markets struggle to come to terms with a potential no-deal scenario.

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"Brexit is like the Y2K bug, there is so much bilateral trade between us and Europe that the EU depends on us, despite playing hardball. I do not see it as being a disaster," he said.

"It is more of a domestic problem, I do not think it will spill over or have an effect on the rest of the global economy. There are far bigger problems than Brexit that will have a longer-lasting effect, such as a US recession."

Concerned investors

Despite McIntosh's optimism, the firm's clients are wary of UK equities, which have seen a widespread exodus according to the Investment Association.

Figures from the trade body show UK equity funds have seen consecutive monthly outflows for the past year. However, McIntosh believes this is not just a result of Brexit uncertainty.

"We have been avoiding UK equities for a while and Brexit just accelerated it," he said.

"It used to be that UK-based clients wanted to be invested in the UK but now they have a more international outlook and understand overseas markets can give better returns. There are massive growth opportunities in Asia and emerging markets."

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He added: "Secondly, the UK stockmarket includes lots of defence, miners and tobacco stocks, which are out-of-favour with younger investors who dislike them from an ESG perspective. There has been a change in attitude and we have seen an increase in clients asking us to avoid certain sectors."

As such, McIntosh said the Balanced portfolio has 27% in UK equities. Overall, the Balanced portfolio is overweight equities, with 38% in non-UK equities, and is underweight bonds. 

Across both asset classes, the portfolio is underweight UK, overweight US, Asia and emerging markets and neutral on Europe. There is also 5% in physical gold via an ETF which, McIntosh said, is held as a hedge and for diversification purposes.