What Can We Expect Following the Brexit Vote?

by: , CEO, IndexIQ by MainStay Investments

Regardless of how the Brexit vote plays out later this week, Britain’s referendum on membership in the European Union (EU) has given the global markets one more thing to worry about. The bookies (and some polls) are favoring staying put, but most reports still have it too close to call.

What happens if Britain votes to leave? Apart from the logistical nightmare, a vote to leave would further call into question the whole EU adventure. No country has ever voted to leave the bloc before and the economic effects for both Britain and the EU as a whole could be severe. Economic logic points to Britain remaining in the EU, but the debate that’s unfolded has often focused on issues far beyond those debated by economists—Britain’s role in the ongoing migrant crisis, the country’s sovereignty and security, and its competitiveness in the global marketplace, to name three.

If Britain were to leave, investors would expect to see an accelerated flight to safe haven assets, with U.S. Treasurys high on that list. Liquid alternative strategies designed to reduce market volatility while allowing investors to maintain some exposure to potential upside are also likely to be front of mind for many. A realignment of the relevant currencies (Pound, Euro & Dollar) is another potential outcome, although as recent years and a lot of our own research at IndexIQ have shown, predicting currency moves is a road one travels down at their own risk.

And if Britain votes to stay? In the short-term, such a resolution could spur some positive market sentiment, particularly for European stocks, which have struggled in recent months amidst this debate. Still, we think the volatility will remain. The very fact that the Brexit conversation has reached this point will leave many questioning the long-term viability of the European Union and watching for any signs of unease among other major members of the bloc.

Also worth noting is that the Brexit campaign may embolden Scottish nationalists, who could once again seek a referendum on independence. Such a vote was held in 2014, with 55% ultimately voting in favor of the status quo, but 2014 seems like a very long time ago these days.

If there is one thing on which we can be certain, it’s uncertainty. The “year of volatility” will proceed apace.

About Risk:
All investments are subject to risk and will fluctuate in value. Alternative investments are speculative, entail substantial risk, and are not suitable for all clients. Alternative investments are intended for experienced and sophisticated investors who are willing to bear the high economic risks of the investment. Investments in absolute-return strategies are not intended to outperform stocks and bonds during strong market rallies. Hedge funds and hedge fund of funds can be highly volatile, carry substantial fees, and involve complex tax structures. Investments in these types of funds involve a high degree of risk, including loss of entire capital.

The information and opinions contained herein are for general information use only. IndexIQ does not guarantee their accuracy or completeness, nor does IndexIQ assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are as of the date of this report and are subject to change without notice. Past performance is no guarantee of future results.

Consider the Funds’ investment objectives, risks, and charges and expenses carefully before investing. The prospectus and the statement of additional information include this and other relevant information about the Funds and are available by visiting IQetfs.com or calling 888-934-0777. Read the prospectus carefully before investing.

MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services. IndexIQ® is an indirect wholly owned subsidiary of New York Life Investment Management Holdings LLC. ALPS Distributors, Inc. (ALPS) is the principal underwriter of the ETFs. NYLIFE Distributors LLC is a distributor of the ETFs and the principal underwriter of IQ Hedge Multi-Strategy Plus Fund. NYLIFE Distributors LLC is located at 30 Hudson Street, Jersey City, New Jersey 07302. ALPS Distributors, Inc. is not affiliated with NYLIFE Distributors LLC. NYLIFE Distributors LLC is Member FINRA/SIPC.


Adam Patti

CEO, IndexIQ by MainStay Investments

Adam is Chief Executive Officer and Founder of IndexIQ. Prior to founding IndexIQ, he led Fortune Indexes, a pioneer in the Exchange-Traded Fund (ETF) industry, having launched two ETFs back in 2000 in partnership with State Street Global Advisors

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