UK Referendum Vote – VPI Portfolio Manager insights

David Atkins, Portfolio Manager, Value Partners Investments

On June 23, the UK voted in a referendum to either leave or remain in the European Union (EU) and is commonly referred to as ‘Brexit’.  The leave surprisingly won by 52% to 48%.  The European Union has been striving for free trade and freedom of movement for decades; however, Britain’s actions are obviously protectionist.  Britain is the world’s fifth largest economy, fifth largest military, and was important member of the EU.  The EU has just become weaker without Britain’s voice and there are new concerns that other countries may follow their path.

The Brexit vote has caused uncertainty and fear amongst politicians and investors alike.  The market hates uncertainty, and over the previous two days of trading the global markets have reacted negatively.  We expect the markets’ negative reaction to be a short-term one.  We will continue to monitor these events as they unfold.

The focus for the VPI Canadian Equity Pool remains the same; to manage the Pool’s $540 million in assets to help achieve unitholders’ financial goals.  Therefore, we will remain focused on what matters: the profitability of the businesses we own, and the opportunities that the market may present.  We know what we own and we will take advantage of others who do not.

The VPI Canadian Equity Pool was not immune to the markets’ pessimism.  Although stock prices have fallen, there is no evidence that the profitability of the businesses we have ownership in are going to be materially impacted as a result of the Brexit situation.  We have over $55 million in cash to take advantage of this event.  We will purchase more of the businesses we own should the stock prices fall to a level that warrants a greater percentage ownership in the Pool.  There are also businesses we would like to own, but not at any price.  The price we pay must still provide a reasonable rate of return for investors with a high probability of success.  Those stock prices need to fall further.  We hope the politicians in the European Union will act ruthlessly, vengefully, and loudly to create more uncertainty and fear in the marketplace.  Uncertainty and fear is our opportunity to own great businesses at attractive prices.