Brexit is beginning to feel like the reality show no one wants to watch as politicians flounce in and out of Downing Street.
If the Government were to collapse and Brexit talks fail, there would be serious implications for investors.
Will we get the soft Brexit Theresa May wants and remain tied closely to the EU? Or will both she and her solution be ejected, throwing the whole process into chaos?
At this crucial stage, I asked four investment experts if there is anything private investors can do to prepare for what may lie ahead.
Uncertain future: Will we get the soft Brexit Theresa May wants and remain tied closely to the EU? Or will both she and her solution be ejected, throwing the whole process into chaos?
All four broadly share a view that, generally, the UK stock market looks cheap and a well-organised Brexit should result in a surge. The consequences of no deal could be very nasty, though.
Ben Yearsley, director of Shore Financial Planning, says: ‘I wouldn’t bet the ranch either way. A good soft Brexit will lead, in my view, to strengthening currency and a stock market bounce — led by domestically-focused stocks.
‘A hard Brexit will lead to a falling currency and stock market.’
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For a soft Brexit, several Invesco Perpetual funds, including the Income and High Income funds and the investment trust Perpetual Income & Growth, are well set up.
‘The manager has more than 30 per cent in UK domestic value stocks, many of which look cheap,’ Mr Yearsley says. ‘He also has overseas earners and defensive stocks, however, so it’s a decent all-round portfolio.’
But if you expect tears before Brexit, he recommends investors go global ‘to take advantage of falling sterling’.
First State Global Listed Infrastructure has only 6 per cent in the UK while Blue Whale Growth holds about 10 per cent UK, he says.
Richard Troue, head of investment analysis at Hargreaves Lansdown, warns: ‘To tilt a portfolio significantly in one direction is a big risk. I’d suggest a balanced approach with a slight tilt, depending on your view.
‘Brexit aside, the UK is an unloved and undervalued market and I think there’s the opportunity to invest now for the long term at a depressed level.’ He says Woodford Equity Income ‘could benefit if the outlook for the UK improves’.
He adds: ‘Neil Woodford thinks the UK economy will continue to grow to the extent that it will end 2018 as one of the world’s fastest-growing major economies.
He’s invested in companies likely to benefit from this, house builders being a prime example.’ Another option is low-cost trackers. Legal & General UK Index provides exposure to the whole market, while the HSBC FTSE 250 Index covers medium-sized companies.
‘These tend to be a bit more domestically-focused, so could see a bigger boost in the event of a favourable deal,’ Troue says.
If a deal isn’t forthcoming, or is thought unfavourable for the UK, then Legal & General International Index Trust is an option.
It follows more than 2,000 companies — more than half of which are based in the U.S., including Apple, Microsoft, Amazon and Facebook, and with a good sprinkling from Europe and the Asia Pacific region.
Jason Hollands of financial planner Tilney says: ‘It is important not to confuse the UK stock market with the domestic economy.
‘The London Stock Exchange is very international and around 75 per cent of the earnings of FTSE 100 companies is made outside of the UK, primarily in U.S. dollars.’
Medium-sized and smaller companies, such as house builders and property firms, as well as domestically-focused banks like Lloyds (which was share hammered last week) could all benefit from a good deal.
Funds which have significant exposure to medium and smaller firms include AXA Framlington UK Mid Cap and JO Hambro UK Dynamic, Mr Hollands says.
He adds that ‘in the event of a collapse of the Brexit process and another steep slide in sterling, big FTSE 100 companies would prove a relative haven’.
He suggests trackers such as Fidelity Index UK as a low cost option. Or Evenlode Income, holding a great deal of large and medium-sized companies that make most earnings worldwide, is a managed alternative.
Adrian Lowcock of Willis Owen says you should avoid big bets and ‘focus on long-term goals, invest in good quality companies because these can navigate any scenario better than badly-managed businesses’.
He suggests diversifying across both UK and global markets.
Funds for a soft Brexit include Merian UK Alpha, where the manager buys unloved stocks and waits for the market to change its view. He also mentioned Woodford Equity Income.
For a hard Brexit, he suggests FundSmith Equity as ‘one of the strongest options for investors seeking exposure to high-quality global equities.’
Prepare for a rough ride. I’m hedging my bets with plenty in worldwide funds, such as Lindsell Train Global Equity and Newton Global Income, but also holding onto UK-based ones such as HSBC 250 tracker and JO Hambro UK Equity Income even though these stocks are so unloved.