Brexit: going down to the wire
"UK Labour not ruling out remain in Brexit vote”, “Flights could cease between UK and EU”, “BMW to shut Mini plant for month post-Brexit”, “Carney makes property crash warning”. That's just some of the Brexit headlines from the past couple of weeks. As the pressure increases on Theresa May and her negotiators and the deadline gets ever closer, there are bound to be more.
Getting hit from all sides
Mrs May seemed to be getting somewhere finally, only to have a very bruising and unsatisfactory meeting in Salzburg last week, when her EU counterparts rejected her proposals. The pound fell by around 1% on more talk of a 'no-deal' outcome. Then the Labour party conference started and with it, talk of calls for another referendum and the intention to vote down her proposed deal.
And more than simply Brexit came from Labour’s conference: the opposition party has announced plans to force companies with more than 250 people to pay dividends to employees. Add to this the suggestion that rail and water companies may be nationalised and that large firms would be made to appoint a third of their board seats to employee representatives, business leaders are up in arms.
However, as Rathbones pointed to us, the party that supports those business leaders – the Conservatives – is losing the public. It has an image problem that is difficult to improve when it’s tying itself in knots over Brexit.
Believe it or not, the Conservative Party received more money from the estates of the dead than from living subscriptions last year. It's membership is down some 75% compared with a decade ago, while the Labour party has been able to raise more money and has eight-times as many paid-up supporters.
Should we, as investors, be worrying too?
All the uncertainty is understandably making investors – as well as business leaders - nervous.
The risk to sterling and our stock market is that ‘hard Brexit pricing’ could get worse before it gets better – overseas investors in particular have shunned UK equities for some time. The more risk-tolerant investors among us may be inclined to buy UK plc or sterling as and when they take a dip – getting them at even cheaper levels - but it could be a volatile ride in the coming weeks.
Keep calm and carry on
A hard Brexit would no doubt cause a number of problems, but it's not really in the EU's interest not to strike a deal. Does BMW want to lose the UK as a market? Does Spain want to lose thousands of British tourists? Probably not. But they were never going to make it easy for us leave. So the negotiations continue.
Old Mutual's (soon to be known as Merian Global Investors) CEO and manager of the UK Alpha fund, Richard Buxton, is confident that a Brexit deal will be agreed. So too is JP Morgan's Karen Ward (who used to work for the Bank of England). But none of us can be certain.
Trying to second guess the outcome and the detail of any eventual agreement seems futile in our view - as is trying to time the market.
A negative view on the outcome is understandable. And should this be the case sterling could fall further, our stock market could take a dive and our economy could slow. So more cautious investors may want to hold more in cash for the time being to mitigate losses.
On the other hand, a better-than-expected outcome could result in a re-rating of both UK equities and the pound. Anyone 'out' of the market at this point could miss out on significant gains.
You may be interested to know that the four VT Chelsea Managed funds remain slightly underweight UK equities. However, this underweight has been reduced in recent weeks, with the team adding to the sector as the stock market has fallen back – or in other words, buying on the dips.
VT Chelsea Managed Monthly Income fund has a 8.5%* weighting to the UK stock market.
VT Chelsea Managed Cautious Growth fund has a 10%* allocation, while VT Chelsea Managed Balanced Growth fund has a 12%* weighting.
The lowest weighting is 10.5%* in the VT Chelsea Managed Aggressive Growth fund.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius' views are his own and do not constitute financial advice.
*As at 31 August 2018