We round up expert views on some of the sectors, industries and asset classes most likely to be affected by the fallout from Article 50.
Mark Whitehead, Portfolio Manager, Securities Trust of Scotland:
‘In the stock market, sectors such as consumer discretionary, real estate (house builders) and utilities have been particularly sensitive, and are likely to remain so. The first two are particularly vulnerable to any further squeeze to real incomes, while utilities’ margins have been hurt by the rising sterling bill of energy imports.
‘Fears of a mass exodus of company HQs may be overblown, but equally it is naïve to expect a business-as-usual scenario. Recent warnings from EU top brass that UK-based airlines will have to relocate their HQs if they want to maintain their routes within continental Europe is a case in point.
‘On the other side, exporters have seen a boost thanks to weaker sterling, but this could prove fleeting if the negotiations result in a more acrimonious separation (including a return of tariffs) – ironically, the scenario that the currency market appears to be discounting.’
Richard Carter, fixed interest specialist, Quilter Cheviot:
‘Such a momentous event will undoubtedly have consequences for the UK economy and we expect to see some volatility in financial markets as events unfold.
‘This will create opportunities to buy and build long-term positions in what we see as attractive investments, as and when they arise. FTSE 250 companies, which are much more domestically oriented, would clearly struggle if the UK economy enters a more challenging phase and so we are being quite selective in this area.
‘Political risk is a crucial consideration for our asset allocation; we have a sizeable position in gold, in part due to uncertainty over the future of the EU. While we do not expect a break-up, the possibility of fundamental reforms to the EU has grown significantly over the past year.’
Jake Robbins, fund manager of Premier Global Alpha Growth fund:
‘We are overweight global cyclicals such as industrials and metals, as economic growth in most parts of the world has continued to improve over the past few months. We also like financials as higher interest rates, particularly in the US, should help improve profitability.
‘We would be cautious on UK domestic focused businesses due to the ongoing economic uncertainty of the Brexit negotiations, but it is largely a local matter and we wouldn't expect it to impact the improved global economic outlook elsewhere.’
Adrian Lowcock, investment director at Architas:
‘The best way to protect against volatility caused by Brexit and the triggering of Article 50 is to be diversified and in particular have exposure to international equities, which should rise in value for UK investors if the pound falls.
‘Companies in sectors with international earnings, which have a global presence and are not particularly sensitive to changes in economic conditions, such as tobacco, pharmaceuticals, consumer staples and technology, may help provide some protection against any disruption caused.’
Jason Hollands, managing director, Tilney Bestinvest:
‘I would caution against making big investment calls predicated on the Brexit process. Rather than trying to second-guess how politics will play out, or the near impossible task of predicting currency market reactions to such events, I believe it is better to focus on fundamentals.
‘This means running with a diversified portfolio, focusing on markets where valuations are not extreme and selecting well-run funds that target high-quality businesses that are not heavily indebted, which provide products and services in areas with structural growth, which have stable margins, strong cash flow and are not vulnerable to commoditised price competition.
‘Thankfully these types of companies can be found on the UK market, where valuations in terms of price/earnings multiples are less stretched than the US. Good funds to access them include Liontrust Special Situations and Evenlode Income.’
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