Investors more concerned about cost of foreign holidays than Brexit effect on investments

• Lack of consumer awareness of equities’ exposure to foreign exchange rates
• 55% aware that investment portfolios should be diversified due to the fall in the value of the pound but only 31% have actually made any changes

Fallout from the Brexit vote has seen the foreign exchange value of the pound sterling plummet 17% against the US Dollar and 14% against the Euro. Research commissioned on behalf of The Open University Business School’s (OUBS) dedicated research Centre, The True Potential Centre for the Public Understanding of Finance (True Potential PUFin), has found that consumers have insufficient knowledge about the impact and ramifications of the falling foreign exchange rate of the pound on equity markets.

Almost two-thirds (63%) of adults are aware that the fall in the value of the pound has increased the cost of foreign holidays but only one in ten (11%) know the extent of FTSE 100 companies’ overseas sales turnover. There is also a lack of knowledge about which specific company sectors will benefit or lose from the fall in the foreign exchange value of the pound, with, for example, only one-third (33%) of adults aware that UK whisky distillers are likely to benefit. Immediate personal impact is higher in the public cognisance than the likely much weightier long term effects on their investments and pensions.

Only one in seven (14%) are aware of how much Sterling has fallen against the Euro since the Brexit vote and a lesser one in ten (10%) are aware of the extent of its fall against the US Dollar. Similarly, the FTSE 100 index is currently about 7% higher than its level at the time of the Brexit vote – it was almost 12% higher in October – yet fewer than one in three (27%) are aware that the value of equities has increased since the Brexit vote.

This new research coincides with The True Potential PUFin annual conference 2016 which focusses on investor behaviour. The results of the research reinforce the importance of financial education for the public.

The UK economy is facing uncharted waters following the Brexit vote and we’ve seen a significant drop in the pound’s exchange rate against many major currencies. Our research has found that there’s a paucity of knowledge amongst many consumers as to how this fall will affect their investments. Whilst over a half (55%) believe UK investors should increase the international diversification of their portfolio, fewer than a third (31%) have actually changed any investment decisions as a result of foreign exchange rate turbulence.

It’s understandable that the majority focus on the short-term hits of the fall in the foreign exchange value of the pound, but failure to adjust and diversify their investment and pension portfolios may end up costing them considerably more than slightly higher inflation and the higher cost of an overseas holiday.

It is interesting that the Financial Conduct Authority’s Asset Management Market Study interim report mirrors calls at our recent conference that asset management funds should display one comprehensive fee so that investors can easily compare fund charges. Funds should also display their performance against appropriate market indices rather than the more opaque practice of showing quartile performance.

Janette Rutterford
Professor of Financial Management at The Open University Business School

Auto-enrolment has substantially increased the population with exposure to equity markets. Many investors will have seen the value of their assets increase because the markets have performed well in the aftermath of the EU referendum. It is a reminder that uncertainty can be viewed as an opportunity not a threat.

Saving and investing regularly removes the need to make short term market judgments. The volatility we are seeing following events in Europe and the United States shows that holding a diversified portfolio is an excellent way to capitalise on upswings in different sectors and geographies.

David Harrison
Managing Partner of True Potential LLP

True Potential PUFin at OUBS offers the public a number of free online interactive courses. Anyone looking to boost their personal finance knowledge can find out more at: https://www.open.ac.uk/business-school-research/pufin/course-modules.

The courses include:

• Managing My Money covers all aspects of household financial management including financial planning and budgeting, debt management, investments, housing, pensions and insurance.
• Managing My Investments examines in detail the range of investment products available to the public, the theories and practices relating to investment management and the impact of behavioural factors ion investment decision-making.
• Managing My Financial Journey explores the development of the financial services industry in the UK, its transformation since the 2007/08 banking crisis and the way regulation is now applied to financial firms and to the sale of financial products to the public.