As you likely know, the UK people voted to exit the European Union yesterday. This has and will continue to create political uncertainty as other member countries like the Netherlands, Spain, Italy, etc consider their own “leave” decisions. It’s important to note that it will take at least two years for an exit to actually occur and so there is still plenty of time for this to be sorted out in a reasonable fashion. The decision has also created economic uncertainty and we are seeing that in the markets today…markets that were likely caught off guard by the result. Markets had priced in a “stay” decision and are now reacting to the uncertainty and potential domino effect across the EU – something referred to as “contagion-risk”. Broad markets are selling off around 3-4% with the hardest hit markets in Europe. A flight to safety is in effect with US dollars, bonds and gold reaching higher prices.

We’d like to offer some comments regarding your portfolio and what our strategy has been and will be going forward:

First, we all need to maintain proper perspective. Headlines will be scary but we can’t focus on those. We need to focus on the quality of the businesses and sectors we own and, in fact, be looking for the right opportunity to buy these assets at now lower prices. We also need to focus on maintaining balance in our portfolios and ensuring we have proper diversification across the asset classes we own. Remember, proper asset allocation is the key to driving long-term returns.

Second, we had positioned the portfolio a few months ago for uncertainty by shifting to “low-volatility” ETF’s in the Canadian, US and International models. This trade continues to be exceptional with these positions experiencing less than half of the downside move in the markets. We also added to our sector positions in agriculture, water, infrastructure and healthcare. These positions offer us high-quality businesses that pay good dividends (cash flow is very important) and this gives us the confidence to hold them through uncertain times like this.

We don’t believe that net earnings from quality businesses will be impacted very much from these political decisions. Yes, some will have adverse effects from higher tariffs, etc. but the majority will seek opportunity in global markets and will adapt. Strong demand remains for businesses that produce items that are in need and their experienced management teams will navigate uncertainty with confidence. Therefore, while we see the price multiple contracting today, we think their earnings will stay strong and we’ll be able to pick-up high quality businesses at better valuations. Further, we don’t see this event as a “Lehman-like” collapse that occurred in ’08. The contagion risk is present but we don’t believe the magnitude will be the same.

Over the coming days and weeks we will continue to manage the asset allocation of the portfolios and we’ll be looking for ways to add value and grow your wealth as opportunities present themselves.There will be no action today as we don’t believe events like this warrant a knee-jerk reaction but rest assured we’ll be ready to take advantage of price dislocations that are inevitable when other people panic.

We thank you for your continued loyalty and for the honour of managing your wealth. Feel free to get in touch with us at any time if you have any questions or concerns.

Sincerely,