How Funds Are Faring After the Brexit Vote

Note: The following is a reprinted alert sent Monday June 27 from Morningstar FundInvestor newsletter editor Russ Kinnel to FundInvestor subscribers. Click here to learn more about Morningstar FundInvestor.

A tip of the hat to The Economist for the best headline ("Anarchy in the UK") on the disaster that is Brexit. About 52% of British voters chose anarchy over union, and we'll be sorting through this mess for months and probably years.

On Friday, the typical U.S. large-blend fund lost a little under 4%, while the typical foreign large-blend fund lost nearly 7%. Foreign funds are getting hit with the double whammy of falling currency (both the pound and the euro) and falling stock prices. Countries most dependent on the European Union got hit harder than the United Kingdom. For example, Spain lost about 14% on Friday.

Meanwhile, safe-haven bonds such as Treasuries rallied strongly. First, investors wanted safety. Second, the vote is a wet blanket on economic growth, and that means long bonds are rallying with little to fear from inflation. The talk on the Fed has already shifted to whether its next move will be to cut interest rates rather than raise them.

As I write this midday on Monday, selling has resumed, with the United States and Europe down about 2%-3% more.

Winners and Losers on Friday Here's a breakdown of the best- and worst-performing categories on Friday.

It's noteworthy that energy, tech, and financials really took it on the chin. Real estate and utilities lost the least.

Fund Winners and Losers Here are the best- and worst-performing FundInvestor 500 funds from Friday. (Note: The FundInvestor 500 is the newsletter's list of the top 500 mutual funds that should be on investors' radars.)

For all the hype that alternatives get, plain old high-quality bonds were the place to be. Even lower-quality munis did pretty well, perhaps because of their interest-rate exposure. And, of course, gold is often a good place to be when the markets are in chaos.

Among those hit hardest are funds with high exposure to the U.K. and Europe, little cash or hedging, and a fair amount of financials.

) as its second- and third-largest holdings.

Relative Winners and Losers

Below are some of the biggest winners and losers in relative performance terms. Conservative approaches that favored cash, gold, or dividends helped a number of funds.

A Few Thoughts Down markets can create buying opportunities. Eventually the 2008-09 bear market made stocks so cheap that they were a great buy. But we didn't get there in a day. Given the possible harm to the global economy, I don't know that the markets have overreacted. So, I'm not doing anything to my portfolio other than trying not to dwell on how much it's down. I will once again evoke the words of Jack Bogle: "Don't just do something, sit there!"

We have a very long road ahead of us. It's not clear when, how, or even if Brexit will occur. In addition, Scotland, Northern Ireland, and Wales are talking about leaving the U.K. to stay in the EU. And we don't know who will be leading the U.K. effort to leave the EU.

So, yes, there is uncertainty and bad things are happening. But making a quick emotional trade is almost always the worst course of action. Sticking to your plan is almost always the best one.

Here are a few helpful articles on the subject.

The Economist Anarchy in the UK: Britain is sailing into a storm with no one at the wheel

Emad Mostaque Why Brexit (Probably) Won't Happen

The Guardian Uncertainty Is Here and Poisoning Our Economy

PIMCO Initial Impact and the Road Ahead

The New York Times Having Won, Some 'Brexit' Campaigners Begin Backpedaling

The Guardian The English Have Placed a Bomb Under the Irish Peace Process