Navigating Brexit with your investments – Part 3

Markets can move quickly on news, so how is it possible to address ‘Brexit risk’ in a portfolio?

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  1. Rob Morgan

This article is part of a 3 part series. 

In case you missed it, read Part 1 here and Part 2 here.

 

Fund ideas

If you are cautious about the effect of a ‘no-deal’ Brexit on the UK economy, or just want to diversify your investments away from the UK, a fund investing in companies from across the globe could be an option. There are plenty to choose from including funds on our Foundation Fundlist of preferred investments across the major sectors.

For instance, Fidelity Index World aims to track the performance of the MSCI World Index, which captures large and mid-sized companies from more than 12 developed countries, with well over half of assets in US equities. The fund has highly competitive annual charges.

An alternative is M&G Global Dividend, which invests in global companies with rising income payouts to investors. The manager, Stuart Rhodes, aims to find companies that consistently increase dividends over time and, ultimately, deliver better share price performance as a result. There is more about the fund in my review from earlier this year.

A change in expectations towards a softer Brexit or a second referendum might favour funds with exposure to domestically orientated shares, so it’s important not to ignore this area even though it would likely suffer further in the event of a no-deal outcome.

UK funds with a ‘value’ based approach or orientated to smaller companies could perform well in this scenario, and Aberforth Smaller Companies investment trust is one option for investors considering this kind of exposure. The managers focus on unearthing companies whose shares are at low valuations but whose longer term potential they believe has been misunderstood or underestimated. I take a look at the Trust in this article.

 

Individual shares

A substantial amount of revenues for UK blue chips – in excess of 70% – is earned in foreign currency. A no-deal Brexit is likely to hit the pound, so foreign currency earners are likely to spike should the pound fall. Also, if sterling falls, the value of foreign investments will be high on conversion back into pounds.

This implies that investors with an internationally diversified portfolio are already prepared for the event – whatever happens. Conversely, a strengthening pound may result in profits made overseas by UK companies being reduced when shifted into sterling should a deal be agreed.

 

Past performance is not a reliable guide to future returns. This website is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investment decisions in fund and other collective investments should only be made after reading the Key Investor Information Document or Key Information Document, Supplementary Information Document and Prospectus. If you are unsure of the suitability of your investment please seek professional advice.

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