Brexit and Recent Financial Market Moves
This article was originally published on June 30, 2016.
Financial markets around the world have experienced significant price movements, with stock markets and currencies declining on the heels of last week’s vote by the United Kingdom (U.K.) to leave the European Union (EU). We understand that some participants may have concerns about the implications of swings in global financial markets, and what a British exit (known as “Brexit”) from the EU could mean for their investments. This informational Q&A is intended to help you understand Brexit—its effect on the world markets and how the General Board of Pension and Health Benefits, through its Wespath Investment Management (Wespath) division, is responding. You’ll also find information on how Brexit might impact you and resources that can help you navigate through this period of market uncertainty.
Q What is Brexit and why is it important?
A On June 23, 2016, the U.K. voted 52% to 48% to withdraw from the EU, a political and economic union of 28 member states. The passage of the referendum is the first step in an uncertain process for the EU and the U.K.—both of which carry heavy economic and political weight. The EU has a population of more than 500 million people with an economy larger than that of the United States. The U.K. is a significant member of the EU—it is the third largest by population and the second largest economy in the union. The U.K.’s vote to exit the union leaves the future of the EU in question—part of what is driving swings in the financial markets is the question of whether other EU member states will take similar action.
As a result of the referendum vote, the U.K. is in turmoil. Prime Minister David Cameron stepped down following the vote, leaving a political vacuum in a country with one of the world’s largest economies. Its currency, the British Pound, has plummeted, as has the country’s stock market. There is uncertainty about the future composition of the U.K., with speculation that Scotland and Northern Ireland could vote to leave the U.K. All of these actual and potential events will weigh on the prospects for growth within the U.K.
Many observers had predicted a narrow defeat for the referendum in the days immediately preceding the vote. The shock of this historic vote, the uncertainty regarding the ensuing secession process and the potential impact of the U.K.’s exit caused significant volatility in financial markets. As the formal exit process moves forward, market instability may persist.
Q What action has Wespath taken during this period of financial market uncertainty?
A In times of market uncertainty, Wespath adheres to a rigorous investment strategy. We also continue to abide by our philosophy of investing for the long term by building and maintaining broadly diversified investment portfolios. We avoid making hasty decisions in response to short-term market volatility. No one—even the most skilled financial experts—can consistently predict the near-term direction of the global financial markets. Our disciplined long-term approach is and will continue to be a prudent approach for meeting our investors’ needs. Over the last 17 years, the markets experienced a meaningful decline that lasted for three years (2000 to 2002) and a very severe decline that lasted less than a year (June 2008 to March 2009). In both cases, Wespath maintained its disciplined strategy to investing, and in both cases our participants benefitted when stock prices rebounded. For more information on the long-term performance of Wespath funds, please click here.
Q Should I change the investment allocation in my self-directed accounts to eliminate exposure to the stock market until the situation in the financial markets improves?
A Guidance for your investment management decisions from EY Financial Planning Services (EY) is offered at no cost to Wespath participants. If you self-manage your investment allocation, you may want to review your current investment selections relative to your risk tolerance, time horizon and expected retirement income needs. Before you take any action, however, remember the importance of a diversified investment mix geared toward your long-term retirement goals and consult with EY regarding the most appropriate investment allocation for your personal investor profile. EY financial planners do not sell investment or insurance products or services. For this reason, you will receive unbiased financial planning guidance from EY.
Please call 1-800-360-2539 to talk to an EY representative.
Q I am a participant with a balance in the Ministerial Pension Program (MPP) and plan on retiring in several months—what impact will the current market crisis have on my expected monthly benefit?
A LifeStage Investment Management (LifeStage) selects investment funds for nearly all clergy with balances previously accumulated in MPP that have not yet been converted to a monthly benefit payment, or “annuity”. LifeStage reduces exposure to higher risk equities as retirement approaches. Although the recent decline in the stock market has adversely impacted MPP balances, most participants approaching retirement (e.g., those within 10 years of their targeted annuitization rate) have a majority of their balances invested in lower-risk fixed income funds. The effect of the market’s volatility on your benefit payment will depend on your designated risk tolerance and other factors that are personal to you. If you would like to project your expected MPP benefit, please use our online Retirement Benefits Projection Tool at www.benefitsaccess.org, or call us for assistance at 1-800-851-2201.
In the face of market uncertainty, Wespath will continue to follow our rigorous investment policies, strategies and processes, which are all geared toward long-term outcomes. Wespath will also continue to provide you with resources to evaluate your investment portfolio and project your future benefit payments. Please contact EY at 1-800-360-2539 for a personalized consultation or call Wespath at 1-800-851-2201 for assistance.
All investing is subject to risk, including the possible loss of money you invest. Diversification does not ensure a profit or protect against a loss. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with adequate retirement income. EY Financial Planning Services are offered at no cost to you. Costs for EY’s services are paid for by the operating expenses of the underlying investment funds.
Posted June 30, 2016