Looking back a week after the unexpected vote by Great Britain to exit the European Union, it is easy to observe the great uncertainty that vote caused, both politically and economically. With it, there was global market volatility as well. The US stock market (as measured here by the DJIA) went down nearly 5% in the two days following the vote, as did other investment markets around the world. Since those first two down days, the equity markets in the US have rallied back about 4% as of mid-morning on Thursday, June 30.
While the Brexit vote was unexpected, the market volatility was not as surprising. Financial markets hate uncertainty and this was clearly a surprise with ample uncertainty. However, as is our regular practice, Covenant Trust stayed the course during the recent market volatility and did not try to trade or time the markets. As we have stated before, investing with a long term time horizon and a disciplined approach to asset allocation allows us to ignore the short term market volatility brought on by events like the Brexit vote and to focus on long term returns for our clients. Vanguard may have summarized it best by saying this week that “investors’ best protection is to hold a portfolio that is diversified across asset classes and regions.”
This is and will continue to be our investment strategy for Covenant Trust clients.