Brexit and the UK consumer with Investec UK Alpha
Managing Director, Darius McDermott, discusses Brexit uncertainty and choppy outlook for 2019 with...
Having finally come to an agreement with the EU over our ‘divorce settlement’, Theresa May had the job of convincing Parliament to approved the terms yesterday.
It didn’t start well. Twitter fast became the home of 280 character resignations from one politician after another. May seems to have upset everyone and, to very loosely quote Oscar Wilde, to lose one Brexit Secretary is misfortune, to lose two is careless.
At the time of writing it appears extremely unlikely the agreement will be approved. The DUP will not support it and, even if every single conservative MP backed it, Theresa May would still not get a majority.
It seems inevitable that there will be a leadership challenge either this week or next. But who gets “elected” will determine what comes next.
There will then either be more negotiations (if the Europeans agree, possibly even an extension of the deadline), no deal or some sort of people’s vote. Labour want to trigger an election, but the Tories don’t have to call one, so this is not a given.
Investors in the UK should not panic though. Even if our politics are in chaos and the pound is falling, it will not necessarily lead to big stock market losses.
As we saw after the EU referendum, while domestic stocks (specially banks, builders and the FTSE 250 generally) may be hurt in the short term, FTSE 100 companies in particular, with their overseas earnings, should do better as the currency moves will cushion any market falls.
Funds that could hold up well in the chaos are those that have a large weighting to the UK’s larger, overseas earners.
Here are some examples:
This a well-diversified fund that must have at least 50% of its holdings in the FTSE 100. The manager believes that markets are excessively focused on short-term factors and that many analysts concentrate on the next set of results and not where a company will be in five years’ time. This creates opportunities.
This fund invests primarily in large UK companies but it has an extra tool at its disposal: as the name suggests, the manager aims to extend investors’ potential returns by buying stocks he expects to do well and also looking to make money on stocks he expects to do badly (shorting).
This equity income fund currently* has about two-thirds of its assets in FTSE 100 companies. It gives investors exposure to a concentrated portfolio of companies with high quality and visible earnings. The manager is unconstrained in terms of sector weightings and is able to fully express his market views with the portfolio positioning.
For those wanting more diversification away from the UK, going global is an option, especially as investors will benefit from a potential currency uplift.
This fund invests in a diversified selection of global companies, which the manager believes have the potential for above-average and sustainable rates of earnings growth. The companies may be based anywhere in the world, including emerging markets. It currently only has a 3%* weighting to the UK.
*Source: fund fact sheet, 30 Sept 2018.