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Fund picks for all Brexit eventualities

Joanna Faith
Written By:
Joanna Faith

It’s hard to predict which path the UK will take as it plans its EU departure, so Tracy Zhao, an investment research analyst at The Share Centre, the fund platform, offers her tips on how best investors can steer through each scenario…

Soft Brexit

Should a soft Brexit deal be reached, we expect to see a rebound in investment spending and consumer confidence, which would in turn result in Gross Domestic Product (GDP) growth.

The Bank of England (BoE) will likely raise rates; gilt yields will climb and sterling will strengthen. The FTSE 100, however, probably won’t be able to shake off the drag from the global growth slowdown and sterling, making returns more challenging this year.

The Share Centre recommends the following in the event of a Soft Brexit:

LF Miton UK Smaller Companies aims to achieve long-term total returns by investing primarily in UK-quoted smaller companies. It will be more aligned with the growth prospects of the UK domestic economy and may provide a buffer against a volatile global economy, should soft Brexit or no Brexit prevail.

Woodford Equity Income’s objective is to provide a reasonable level of income together with capital growth by investing primarily in UK listed companies. The portfolio is tilted toward mid and small companies. The manager, Neil Woodford, has forged a reputation of not being afraid to be contrarian or to back his convictions and beliefs.

DB X-Trackers FTSE 250 ETF gives full replication to the index of 250 constituents. We should see a rebound in investment spending in the UK and general activity levels picking up for more UK-focussed companies.

Boohoo is an AIM-listed online fashion retailing business. Consumer confidence should pick up once the cloud of uncertainty fades.

TR Property Inv Tst focuses on acquiring assets with future growth and capital appreciation potential rather than immediate initial yield or discount to asset value. Should a deal be passed by parliament, the uncertainty and volatility imposed on the property trust would be eased.

Hard Brexit

If the UK were to leave the EU on bad terms, the impact may well be substantial. We could see the pound fall sharply, consumer confidence may dampen further and growth slip further.

With inflation fairly well behaved of late, the Bank will have the ability to support the economy by cutting interest rates. In a no-deal Brexit scenario, supported by a lower pound, the FTSE 100 probably would outperform smaller caps as its income is largely generated from overseas operations. A hard Brexit could be a one-off shock and growth may well then get back on track – although how quickly the economy will rebound would heavily depend on how policymakers responded.

Artemis Income aims to produce a rising income with capital growth by taking advantage of valuation across market capitalisation with a bias for large cap value investments.

Schroder Income benefits from holding a number of large-cap UK firms with global operations that generate income worldwide and will benefit if sterling weakens.

Brexit will not stop the march of technology globally.

GO UCITS Solutions Robo Global Robotics & Auto tracks the ROBO Global Robotics and Automation UCITS Index using a full replication methodology. The largest country weightings are towards the US and Japan and there is relatively little exposure to the UK.

Diageo, a beverage company seated in the FTSE 100, should benefit from the falling sterling as it derives most of its sales from overseas with the US as its biggest market.

AstraZeneca researches, manufactures and sells pharmaceutical and medical products. It has made extensive preparations for Brexit and its global nature makes the company relatively immune from the uncertainty as well.

No Brexit

If the UK government revokes Article 50, we could expect a heavy inflow of investment capital back to the UK. GDP would likely pickup faster than expected and as would sterling. Inflation pickup would likely trigger the BoE to raise rates sooner and therefore inflation-linked investment could be added into ones’ portfolio.

Janus Henderson Index-Linked Bond aims to provide a return by investing primarily in UK index linked government bonds, providing protection against inflation.

LF Miton UK Multi Cap Income was set up in anticipation that small/micro-cap stocks would outperform the mainstream indices, especially overlooked small/micro caps because they have a history of performing better than similarly sized growth stocks longer term. The fund would act as a good hedge against inflation.