Weekly Commentary, 6/20/16 – 6/24/16
For weeks the markets have waited breathlessly for the United Kingdom (England, Wales, Scotland, and Northern Ireland) to vote on a referendum (commonly known as Brexit) that would determine whether they stay or go from the European Union (EU). On Thursday, voters delivered a shock to world financial markets (and British odds makers) by voting 52% to 48% in favor of leaving the EU. Before the vote, projections favoring the U.K. to remain ranged from 60/40 to 80/20, leaving quite a lot of predictors on the wrong side of the outcome. Interestingly, Scotland and Ireland voted overwhelmingly in favor of remaining in the EU while England and Wales favored leaving.
The vote is just the start of the extraction process. The next step calls for the British government to formally notify the EU—under a provision known as Article 50 of the Lisbon Treaty (the so-called ‘divorce clause’)—of their intent to withdraw from the EU. With David Cameron resigning as Prime Minister immediately following the referendum, that task falls to his successor. Once Article 50 is invoked, a two year time line for negotiating the exit begins. At issue for the markets however, is not only the U.K., but potential similar departures of other EU members. Only a few years ago Greece, crushed with enormous debt, threatened to leave the EU (colloquially referred to as Grexit). A ‘bailout’ of Greece announced in June of 2015 seemed to have saved Greece and the EU, with Greece remaining in the fold. But over the weekend more than one news headline has suggested that Greece leaving could again be a possibility. And if Greece leaves who would be next? Spain? Italy? Germany? What about Sweden? In short, a vote focused in the U.K. may send shockwaves across the Eurozone with even deeper global ramifications. However, unlike British odds makers (and in line with our more studied approach to investing) we will eschew predictions in favor of fact. The flipside, in this case, is the possibility that this becomes a tempest in a teapot, with the European Union moving ahead without the U.K. Only time will tell.
The Stadion Managed Accounts risk objectives are managed using a “core/satellite (Flex)” approach. The core positions will comprise 40-60% of the portfolio and are invested in equity, fixed income and money market instruments with the strategic allocation becoming more risk averse as the risk tolerance of each fund changes. In allocating the objective’s Flex assets (the remaining 40-60% of each portfolio), Stadion uses a proprietary, rules-based weight-of-the-evidence model. With the current volatility in the model and recent weakness in the weight-of-the-evidence, equities were reduced in the portfolio.
Past performance is no guarantee of future results. Investments are subject to risk, and any of Stadion’s investment strategies may lose money. The investment strategies presented are not appropriate for every investor and financial advisors should review the terms and conditions and risks involved. Stadion’s actively managed portfolios may underperform during bull markets. Some information contained herein was prepared by or obtained from sources that Stadion believes to be reliable. There is no assurance that any of the target prices or other forward-looking statements mentioned will be attained. Any market prices are only indications of market values and are subject to change. It is not possible to invest directly in indexes (like the S&P 500) which are unmanaged and do not incur fees and charges. The Sharpe ratio measures the excess return per unit of deviation, or risk. Any references to specific securities or market indexes are for informational purposes only. They are not intended as specific investment advice and should not be relied on for making investment decisions.
Past Performance is no guarantee of future results. Investments are subject to risk, and any of Stadion's investment strategies may lose money.