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Navigate Brexit

Diversification is key as we get closer to the deadline

Important - The value of investments can fall as well as rise, so you could get back less than you invest, especially over the short term. The information shown is not personal advice, if you are unsure of the suitability of an investment for your circumstances please contact us for personal advice.

Kate Marshall

Senior Investment Analyst

It's hard to silence the noise created by Brexit.

Politicians are in disarray and the media shouts from the rooftops about every minor detail.

The noise can be deafening. But in a way we should expect this. After all, the negotiations between the UK and EU are a big deal. There's a lot at stake, so it's bound to cause some commotion along the way.

We don’t have a view on whether Brexit is a good idea, or whether it’ll be positive or negative for the UK economy. Some of the UK’s finest economists have tried to find the answer to this conundrum, and most have failed to draw any firm conclusions – especially given we still don’t really know what Brexit will look like.

Here we run through what we think are the main issues facing investors as we prepare to leave the EU.

What kind of Brexit will we end up with?

As it stands Britain will leave the European Union on 29 March 2019. Politicians have a habit of kicking the can down the road though. We shouldn't rule out the possibility this deadline might change and for uncertainty to persist.

Ultimately, some sort of compromise is in the interest of both the UK and the rest of the EU. A 'hard' Brexit – which would see the UK give up full access to the single market and the need to make new trade deals – has negative consequences for both sides of the negotiating table. So it's likely they'll work towards some sort of deal they can agree on.

This means a 'soft' Brexit looks increasingly likely. The market would probably see this as the most positive outcome, so share prices could rise and the pound strengthen.

But both parties are acting in their own interests. They might be too stubborn to come to any agreement. In the event, both the stock market and the pound could take a hit.

The reality is, nobody really knows what’ll happen.

Uncertainty for sure

What we do know is that investors and companies don’t like uncertainty. As news flow comes and goes, there could be big shifts in sentiment and swings in the market. And as things keep changing, it makes it even more difficult to invest based on any particular outcome.

In the short term, markets could stay volatile. The outcome should become clearer as we approach the deadline though, and markets are generally quick to factor things into share prices. So unpredictability could ease as we get closer to the final curtain call.

But predicting the direction of any stock market, based on an economic or political event, is extremely difficult.

Take Greece. In 2012 a lot of investors thought the end was nigh for the debt-ridden country, and wouldn't touch the European stock market with a barge pole. But in the following years it went on to perform exceptionally well, although there are no guarantees this will be replicated.

Grexit fears to now - European Market performance

Past performance is not a guide to the future. Source: Lipper IM to 31/07/2018

Stay on track

Whatever Brexit entails, don't let it derail your investment plans. There will undoubtedly be factors you can’t control, but we think it’s important to focus on what you can. This will give you the best opportunity to grow your money in the future.

Firstly, diversify. If you have your eggs all in one basket it means your fortunes are tied to one asset. Spread your money across different countries, sectors, and even different types of fund. When one area performs poorly, hopefully another should pick up the slack to help smooth out returns.

You don't always need to be fully invested though, so you could think about holding some cash too. If you're genuinely cautious over what the future holds it makes sense to keep some money aside until you're ready to invest again. It’s always sensible to keep some rainy day money set aside for emergencies too.

We think most people should keep some cash on hand. It means you can use any volatility to your advantage. Any falls in the market give you the chance to add to your favourite investments at lower prices.

If you’re looking to save cash for a little longer, you might want to think about a fixed-term savings product.

Find out more about our cash savings service

Our latest ideas

If nothing else, now could be a good time to review your investments and make sure they still meet your goals and needs.

Over the long run we think the most important thing is to invest with great fund managers. No investor can avoid the ups and downs of the broader market completely. But investing with managers with proven track records of selecting companies that have gone on to deliver exceptional returns is a good strategy for the long term. You can find our favourites on the Wealth 50.

Here you'll find our latest fund ideas to consider in the run up to Brexit. They take into account investors’ different views, and each will perform differently depending on the final outcome. They can fall as well as rise in value, so you could get back less than you invest.

See our latest fund ideas

Jonathon Curtis

Investment Analyst

Legal & General International Index

If you’re cautious about the effect of Brexit on the UK economy, or just want to diversify your investments, a fund investing in companies from across the globe can be a great solution.

The Legal & General International Index Trust fits the bill. It invests in companies around the world, but excludes those on the UK stock market.

96% of the world’s economy is outside the UK, so there are thousands of companies in a variety of countries to invest in. From innovative tech companies to those that sell your daily essentials, many of these are world-class and leaders in their industry.

Legal & General International Index Trust aims to track the performance of the FTSE World ex UK Index. More than half the companies are based in the US, with lots from Europe and the Asia Pacific region too. The fund also invests in some emerging markets and smaller companies, which we think offer a lot of growth potential, but they're higher-risk.

The fund’s largest investments are the tech giants of Apple, Microsoft, Amazon and Facebook. But with well over 2,000 companies in the fund there’s plenty of diversification.

Legal & General International Index - five year performance

Past performance is not a guide to the future. Source: Lipper IM to 31/07/2018

Annual percentage growth
July 2013 -
July 2014
July 2014 -
July 2015
July 2015 -
July 2016
July 2016 -
July 2017
July 2017 -
July 2018
Legal & General International Index 4.41% 11.31% 19.11% 18.21% 11.26%
FTSE World ex UK 4.60% 13.06% 19.09% 18.49% 12.61%

Past performance is not a guide to the future. Source: Lipper IM to 31/07/2018

This fund is our favourite tracker fund for investing globally. Its run by one of the biggest passive fund management teams around. Their scale and know-how is hard to beat in the world of passive investing. The charge is low at just 0.08%. That helps the fund track the performance of the FTSE World ex UK index as closely as possible. The charge to hold funds on our platform (maximum 0.45% per year) also applies. The fund’s value will fall and rise, so you could get back less than you invest.

More information on this fund including charges

Legal & General International Index Key Investor Information

Invest in Legal & General International Index

Legal & General International Index

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Richard Troue

Head of Investment Analysis

M&G Global Macro Bond

Sometimes it’s good to have investments that not only give you a foothold in overseas markets, but have the potential to perform differently from shares.

This is where bonds can be useful.

Bonds are loans to companies and governments. They tend to pay a fixed level of income to investors, and are usually less volatile than shares. They’re less volatile because there’s less risk – to make money from a share you need the company to do well, but as long as governments and companies have enough money to service their debts, bondholders should get paid.

M&G Global Macro Bond Fund offers an interesting take on bond investing.

This is because Jim Leaviss, the fund’s manager, takes a truly global approach. He invests in government bonds, corporate bonds, and higher-risk types of bond that offer higher yields, including emerging market bonds.

Leaviss puts large scale economic factors (macroeconomics) front and centre when deciding how to invest. He considers the outlook for economic growth, interest rates, and inflation. And he invests where he thinks the outlook is good. He considers currencies too. He’ll have more holdings in those he thinks will be strong and aims to avoid those that’ll weaken.

If the outlook changes he has the flexibility to respond quickly. He has an excellent long-term track record and has delivered higher returns than the average fund in the sector. But he won’t get it right every time and like all investments it’s value will rise and fall, so you could get back less than you put in.

How the fund currently invests

The fund typically has a bias to the US dollar, which currently makes up almost half of its investments. Very little is invested in sterling because of the risks posed by Brexit. So this fund could perform well if sterling weakens and the dollar strengthens, though this could also work the other way.

Just over 40% of the fund is invested in government bonds, and a lot of these are US Treasuries. They went through a poor spell of performance recently and yields rose to a level Leaviss felt was attractive. He’s also investing in US dollar-denominated corporate bonds.

Almost a quarter of the fund is invested in emerging market bonds. This is also an area that’s struggled recently, but Jim Leaviss thinks yields are attractive, so he’s happy to stay invested .

M&G Global Macro Bond - five year performance

Past performance is not a guide to the future. Source: Lipper IM to 31/07/2018

Annual percentage growth
July 2013 -
July 2014
July 2014 -
July 2015
July 2015 -
July 2016
July 2016 -
July 2017
July 2017 -
July 2018
M&G Global Macro Bond -6.52% 5.03% 21.34% 3.59% -1.16%
IA Global Bond -2.4% 0.39% 15.16% 2.78% -0.39%

Past performance is not a guide to the future. Source: Lipper IM to 31/07/2018

The manager can use derivatives, which help manage the fund‘s sensitivity to things like changes in interest rates, but can also add risk. The fund may invest more than 35% in securities issued or guaranteed by any one or more of the governments of Germany, Japan, the UK, and the USA, or other countries listed in the fund’s prospectus.

More information on this fund including charges

M&G Global Macro Bond Key Investor Information

Invest in M&G Global Macro Bond

M&G Global Macro Bond

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Dominic Rowles

Investment Analyst

HL Multi-Manager UK Growth

The UK currently has, without a doubt, one of the world’s most unloved global stock markets. Investors have pulled almost £10bn out of UK funds since the EU referendum just over two years ago. And most of it has been reinvested overseas.

We think investors could be missing a trick.

All global markets have issues to overcome from time to time. But the UK is home to some of the world’s best businesses.

Consumers will carry on buying goods like food, cosmetics or electrical appliances, and use other services, no matter what's going on with Brexit. So we’re confident lots of companies will still be able to make cash, just as they’ve done through difficult times in the past. Ultimately we think this is what will drive share prices over the long term.

The UK stock market is also international in nature, because a lot of companies make money overseas, as well as on home soil.

The home of great investors

The UK is also home to some exceptional fund managers. Over the long run they've built great track records of performing for investors.

We think choosing a selection of some of the best managers, with different investment styles, is a great way to invest.

If you'd prefer to leave the research and decision-making to professional investors, the HL Multi-Manager UK Growth Fund could be an option.

It invests with some of our favourite UK fund managers in a single, ready-made portfolio. All the main areas of the UK market are considered – from small companies with impressive growth potential, to established market leaders that pay profits back to shareholders in the form of dividends.

We think these managers are worth sticking with for the long term – deal or no deal.

The HL Multi-Manager UK Growth Fund has done very well since launch in January 2015. It's grown 37.6%* compared with a 32.3% for the broader UK stock market, though past performance isn’t a guide to the future and you could get back less than you invest.

HL Multi-Manager UK Growth - performance since launch

Past performance is not a guide to the future. Source: Lipper IM* to 31/07/2018

Annual percentage growth
July 2013 -
July 2014
July 2014 -
July 2015
July 2015 -
July 2016
July 2016 -
July 2017
July 2017 -
July 2018
HL Multi-Manager UK Growth n/a* n/a* 2.11% 19.6% 6.36%
FTSE All-Share 5.61% 5.38% 3.82% 14.9% 9.15%

Past performance is not a guide to the future. Source: Lipper IM to 31/07/2018

*Full year performance data not available

Investments in small and medium-sized businesses have worked well and could boost long-term growth. If there’s a no-deal Brexit, smaller companies generally won’t mind as much as the larger ones, since they’re less affected by overseas trade. They can be higher risk than bigger companies though.

Day-to-day management of the fund is handled by fund experts Lee Gardhouse and Ellen Powley. They watch and make changes to the portfolio on investors' behalf. We think the convenience, diversification and expert management justify the additional cost of a multi-manager approach.

HL Multi-Manager UK Growth Fund is managed by our sister company, HL Fund Managers Ltd.

More information on this fund including charges

HL Multi-Manager UK Growth Key Investor Information

Invest in HL Multi-Manager UK Growth

Beyond the referendum - latest share ideas

HL Multi-Manager UK Growth

Invest now

George Salmon

Equity Analyst

Everyone sees Brexit from a different angle.

Depending on who you ask, it’s either long overdue, a nasty shock waiting in the wings, or a bit of an irrelevance.

Here, we take a look through three different lenses, and explore different investment approaches. Any yields quoted are variable and not a reliable indicator of future income. The value of investments will fall as well as rise, so you could get back less than you put in.

Brexit hinders Britain

We’re only a matter of months from Article 50 kicking in. But we still don’t know exactly what Brexit will look like.

Until that’s sorted, doomsday scenarios of British industry slumping on the back of reduced investment, and visions of a disorderly split isolating the UK’s financial services sector from European markets will continue to linger.

But this doesn’t mean everyone with Brexit worries should shove their cash under the mattress.

There are plenty of ways to navigate short-term uncertainty. And perhaps one of the most effective is to go global.

Stepping outside these shores can help diversify a UK-focused portfolio. There’s potentially a second tailwind too. After the Brexit vote, sterling dropped sharply on fears of an economic meltdown, which boosted the value of overseas investments for UK investors. If fears start turning into reality and the pound weakens once more, holding international shares could have extra benefits.

PepsiCo makes less than 3% of its revenue in the UK. Its global presence is split over 22 billion-dollar plus brands. Gatorade, Mountain Dew and 7Up support the headline act, while Lay’s (Walkers) and Doritos bring the nibbles to the party.

Geographic breakdown of PepsiCo's revenue

Source: Thomson Reuters Eikon 13/08/18

The operating model includes a number of licencing deals with external bottling companies. For example, Britvic pays Pepsi a licence fee to bottle and distribute its brands in the UK.

This model’s helped Pepsi become a lean, cash generative business. That extra cash has come back to shareholders’ pockets at an impressive rate, with dividend increases in each of the last 45 years. The shares offer a prospective yield of 2.6%. Analysts expect more increases from here, though of course there are no guarantees.

It also means Pepsi’s been able to focus on marketing and innovation, two areas it’ll need to lean on if the UK’s decision to tax sugary drinks catches on elsewhere.

PepsiCo factsheet, share prices and charts

Find out more about trading overseas shares

Brexit boosts Britain

It feels like most of the coverage around the UK’s impending exit from the EU focuses on the potential trip wires ahead. That negativity is weighing on some shares in cyclical sectors like UK financials and property.

A positive outcome would mean these worries unwind, potentially taking the handbrake off companies shrouded in negativity.

So who could benefit?

British Land was picked as one of our shares to watch in 2018. At the time, we said it could be an attractive option for income-seeking investors, but that its focus on central London would leave it open to Brexit-induced ups and downs. That’s still our fundamental view.

The shares are trading at a price to book ratio of just 0.69. That means the market value of the company is less than the net value of the assets on the balance sheet. That’s not unusual in itself, but the discount is larger than normal.

British Land price to book ratio - 10 year history

Past performance isn’t a guide to future returns. Source: Thomson Reuters Eikon 13/08/18

It reflects those Brexit worries. If business levels drop, or London loses some of the glow that’s made it a shining light of Europe’s financial sector, the appeal of British Land’s portfolio of offices and commercial space could fall.

The noises coming out of Brussels haven’t all been encouraging, but a closer look at recent transactions is reassuring. Sales of business sites in London haven’t come through at anything which looks like a knock-down price. The cash coming in has reduced debts, and helped fund a share buyback.

The retail portfolio looks a little more under pressure. That’s due to the structural shift towards online shopping, and an increase in retailer failures.

But the group’s still confident. Occupancy is still high at 96.4%, and rental agreements are being struck above estimates.

As a REIT, British Land has to pay out 90% of rental income, which is secured by leases that on average have 7.7 years left to run on. That will boost confidence in the short-to-medium term.

If the UK gets a good deal, and worries on Brexit start to unwind, the 4.8% prospective yield on offer today would look even more attractive.

British Land factsheet, share prices and charts

Find out more - 5 minute guide to REITS

Brexit bores Britain

Believe it or not, Brexit isn’t all about binary outcomes. Come rain or shine, the world will keep turning when the UK leaves.

Many would prefer to get on with things, rather than dwell on the ifs, buts and maybes of the Brexit debate. Predicting political events is difficult enough without the extra pressure of correctly guessing the market reaction. Few anticipated the Brexit referendum result in the first place, and even fewer expected the surprising drop, followed by the steady climb that came afterwards.

We think investors should focus on companies’ business models and the drivers of its growth, rather than political tailwinds.

With this in mind, we’re long-term fans of Anglo-Dutch business RELX.

The group includes a world-leading events business, which hosts over 130,000 exhibitions for over 7m people every year. But the biggest contributor to profit is its academic journals, and databases like ScienceDirect and Scopus.

About 1 in 6 of the world’s scientific research papers are published by RELX. Millions of monthly users at thousands of institutions across the world pay regular subscriptions to access the huge banks of work.

The fact that free content is gaining ground online might ring a few alarm bells, but we’re not too worried. Free journals tend to lack the quality of RELX’s offerings, and for much of the academic community, unreliable research is worse than no research at all.

Having quality content means customers come back year on year. Such reliable revenues help the group to build a good degree of pricing power.

Attributes like this have helped build an attractive dividend record. It’s either held or increased the payout every year this century, and analysts think this record will rumble on for a few years yet, though there are of course no guarantees.

RELX dividend per share (GBp)

Past performance isn’t a guide to future returns. Source: Thomson Reuters Eikon 13/08/18

Market consensus is that an investment made today could offer a prospective yield of 2.6% next year.

RELX factsheet, share prices and charts

Find out more - how to pick shares

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Past performance is not a guide to the future. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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