Since the publication of our recent Investment Insights Flash Brexit – Prepare for the worst hope for the best the Brexit saga has gone through another series of twists and turns. Most importantly, it is Boris Johnson’s “do or die” pledge to leave the EU by the end of October that is now “dead in a ditch”, rather than the UK prime minister himself[1], and the UK is holding a snap election on December 12.

For investors the most essential takeaway from these developments is dwindling No-Deal odds, and markets have already responded accordingly. Sterling has surged against the euro from 1.11 to 1.16 and 10-year gilt yields have rallied from 0.47 to 0.81[2]

With those common Brexit indicators now at elevated levels, at least compared to recent months, Britain’s divorce from the EU without an agreement fulfills two essential criteria of a tail event: A low probability implied by financial markets and the potential for significant losses if the risk materializes. But it’s not only the threat of a No-Deal that provides potential for markets to move substantially; calling Brexit off would also do so. Therefore Brexit is still much too big to ignore.

This paper takes up the cliffhanger question with which we ended the Investment Insights Note about how much Brexit exposure investors really have in their portfolio. We explore the concept of uncovering true Brexit exposure regardless of the investment’s name or label and apply it to a set of commonly used indices.

If investors know the true UK sensitivity of an investment they can use the information to position their portfolio according to their view as to how the Brexit saga will end.

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1. Referring to Mr. Johnson who said in the beginning of September he would “rather be dead in a ditch” than agree to extend Brexit beyond 31 October

2. Period: 10.10.2019 – 11.11.2019. Source: Bloomberg.


This information is subject to change at any time, based upon economic, market and other considerations and should not be construed as a recommendation. Past performance is not indicative of future returns. Forecasts are based on assumptions, estimates, opinions and hypothetical models that may prove to be incorrect.

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