A $7 Billion Manager Piles Up Cash in a Bid to Pounce on Brexit

  • Many investors complacent about referendum, Lingard says
  • Franklin manager hoping to find bargains on ‘Leave’ vote

Over in Canada, a $7 billion fund manager is loading up on cash in an attempt to profit if the U.K. votes to leave the European Union.

Investors are wrong to assume bookies, who see a lower chance of a so-called Brexit than polls do, are better guides, says Stephen Lingard, a multi-asset portfolio manager at Franklin Templeton Solutions. He’s moved about 10 percent of some of his funds into cash, the biggest position he can remember, and plans to pick up bargains after a stock slump should voters decide to part ways with Europe in the June 23 referendum.

“It’s certainly going to go down to the wire,” Lingard, who’s also co-head of equity strategy for the group, said in a phone interview from Toronto. “We’ll be looking to probably buy U.K assets if there’s a significant correction on the basis of a leave result.”

Concern about a potential secession has convulsed global markets this week, with measures of equity and currency volatility soaring and bond yields from Japan to Germany sinking to record lows. European equities could lose almost a quarter of their value in the immediate aftermath of an exit vote, with those from the U.K. poised to suffer the most, according to risk-modeling firm Axioma Inc.

Polls, Bookies

A ComRes phone poll for the Sun newspaper published Tuesday evening found 46 percent of respondents backing “Remain” and 45 percent for “Leave,” narrowing a gap that had been 11 points a month earlier. Before that, five surveys in 24 hours had shown a preference for an exit. Most of the biggest betting firms and exchanges in the U.K. and Ireland place a 60 percent or better chance that Britain will stay in the EU.

For Lingard, investors have assumed bookmakers are more accurate than opinion polls because they got it broadly right on Scotland’s plebiscite on independence in 2014, when late surveys put campaigners favoring a secession ahead. With Brexit, Lingard says, more people will be willing to share their true intentions with pollsters before the vote.

“A lot of the marketplace was seeing this as a rerun of the Scottish referendum,” he said. “There were some fairly unique factors that kept pro-Union voters from really expressing that view. They didn’t want to get a brick through the window,” he said. “This time, there isn’t necessarily that same taboo factor.”

Read more on why bookies remain confident Brexit won’t happen.

U.K. Chancellor of the Exchequer George Osborne warned in a speech on Wednesday that leaving the European Union could spark a fiscal crisis, with reduced trade and investment leaving a 30 billion pound ($43 billion) “black hole” that would have to be plugged by increased taxes and spending cuts. “Leave” campaigners from David Cameron’s Conservative Party rejected Osborne’s threat of further austerity.

In a period of big events for global markets, including Federal Reserve and Bank of Japan decisions on monetary policy this week, Lingard said the British vote is the only game in town for him. About $2.4 trillion was erased from the value of global equities in the past week.

Lingard joined Franklin Templeton in 2007 after previously working for Fidelity Investments and Societe Generale SA. He oversees 21 funds for Franklin, according to data compiled by Bloomberg. The largest, the Quotential Balanced Growth Portfolio, has beaten 69 percent of peers over the past three years, and has lost 3.3 percent in 2016, the data show.

Growth Hit

Lingard’s reason for keeping high cash holdings is also partly because he sees both stocks and bonds as expensive. He says it’s hard to calculate the hit to growth if Britain does vote to leave the EU, but many companies would move at least part of their operations outside the U.K., which would weigh on jobs and economic activity.

Still, for Lingard, many U.K-listed stocks are good businesses that have the bulk of their operations outside the country already and will benefit from a weaker pound. The British currency fell to a two-month low on Tuesday. He gives Royal Dutch Shell Plc, Vodafone Group Plc and HSBC Holdings Plc as examples of companies that might be worth buying.

“I do think there could be an opportunity created by a Brexit vote,” he said. “So we want to make sure that we have some cash on hand.”

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