The reality is no-one really knows for sure how the BREXIT event will play out, in terms of economic impact, political impact, and general market uncertainty, and not to mention the unintended consequences. There are plenty of views and opinions in the various media and Investment Banking research. It is clear many people were caught off guard, and the aggressive market moves we saw on Friday reflected that.

It is important to note that the BREXIT referendum is not a legally binding event. It still needs to be approved by parliament (as well as being agreed by EU etc) and therefore the mechanics of an actual BREXIT is very complicated to say the least.

It is also possible, that the eventual BREXIT will be a different or more negotiated version of the current worst case scenarios being espoused by the media. Whether we see a full BREXIT or a "BREXIT Light” remains to be seen and will also take some years to fully play out.

What is clear is that divorces are never clean, happy or quick. Therefore, we expect continued volatility in the months ahead.

We are continuing to monitor markets with the view of sharpening our pencil on the following ideas, and will be taking positions where we see attractive entry points:

Long: US Treasuries

10 year The US treasury yield has fallen from 2.5% 12months ago to 1.5% currently. At this yield we continue to see attractive defensive yield and expect these bonds to further increase in value in a negative yield world (e.g. German, Japan 10yr yields are negative). There is now an argument that US Fed may not increase interest rates for the remainder of this year (and may actually cut rates!). Even without this, the spread of US treasury yields vs many sovereign bond rates in Europe is actually positive and high by historic standards, which to our IC presents an attractive buying opportunity.

Long: Gold

In the past we have not allocated much capital to gold as we feel it is a fear gauge and insurance policy for investors. Furthermore it does not produce any income or yield. However, in a negative rate environment, gold’s zero yield actually looks favourable on a relative basis. One way we are considering playing this trade is to buy the Gold ETF and then sell out of the money calls (covered buy write strategy) to generate some option premium income.

Long: Dividends

We love yield and income. We believe all investors should have an element of income strategies within their portfolios. In a negative yield world, income becomes more valuable (and rare). Hence we are seeking defensive dividend income, and with equity markets selling off, we see a number of opportunities, (especially in the US and UK). Our IC is currently running a number of sophisticated quant screens to seek our sustainable and defensive dividend yield stocks that have recently been sold below their intrinsic value. Some sectors that are currently looking attractive include Telecommunications, REITS, Utilities and (selective) Financials. Although the latter we are somewhat cautious, and believe there is some further short term downside.

Short: Commodities

In a low growth world, we are short most commodities especially base metals (copper, coal etc). This is especially so, given the recent oversupply of commodity production vs demand. Our favoured way to express this view is via ETFs.

Curriencies: Long USD

We believe currency volatility will become more pronounced and it will be extremely important to consider and protect against adverse movements in the currency cross rates. We believe Quantitative Easing will continue, and possibly be increased in Japan and even USA, as well as UK to protect their local currency and economy. Hence while we see JPY as a short term beneficiary of the safe haven trade, in the medium to longer term we are bearish on the JPY. On GBP we believe there will be some short term consolidation, and for longer term focused investors, around 1.30 to the USD looks like a reasonable buying point.

However, we prefer the dust to settle before going long on this currency and it remains on our watch list and we will do more work. We are most cautious on EUR and AUD as well as Emerging Market currencies in general. We prefer to keep things relatively simple and stay long USD and HKD for now.

Disclaimer: this is commentary and not investment advice.