Deal or No Deal? Prepare your pension pot for Brexit

BREXIT is beginning to feel like the reality show no one wants to watch, as politicians flounce in and out of Downing Street.

And if the Government were to collapse and Brexit talks failed, there would be serious implications for investors.

Will we get the ‘soft’ Brexit Prime Minister 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.

All four broadly share the view that, generally, the UK stock market looks cheap and a wellorganised 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.’

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 pc in UK domestic value stocks, many of which look cheap,’ says Mr Yearsley. ‘But he also has overseas earners and defensive stocks, so it’s a decent all-round portfolio.’

However, 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 pc in the UK, while Blue Whale Growth holds about 10 pc, he says.

Richard Troue, head of investand ment 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, undervalued market — I think there’s the opportunity to invest now for the long-term at a depressed level.’ He says that 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 fastestgrowing 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 firms.

‘These tend to be a bit more domestically focused, so could see a bigger boost in the event of a favourable deal,’ says Mr Troue.

If a deal isn’t forthcoming, or is thought unfavourable for the UK, 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 around 75 pc of the earnings of FTSE 100 companies is made outside of the UK, primarily in U.S. dollars.’

Medium-sized and smaller firms — such as house builders and property companies — as well as domestically focused banks including Lloyds (which was share hammered last week) could all benefit from a good deal.

Funds that have significant exposure to medium and smaller firms include AXA Framlington UK Mid Cap and J O Hambro UK Dynamic, says Mr Hollands.

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. 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 and invest in good- quality companies, as 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 mentions Woodford Equity Income, too.

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 on to UK-based ones such as HSBC 250 tracker and J O Hambro UK Equity Income, even though these stocks are so unloved.