Four managers give their views on post-Brexit Britain, January 2021

It is now a month since an eleventh hour Brexit deal was struck between the UK and the EU. But with the headlines last week suggesting that the UK is headed towards a double-dip recession, what is the outlook for British companies in 2021?

We asked four fund managers for their views on post-Brexit Britain.

UK equities

Hugh Sergeant, manager ES R&M UK Recovery

“Whatever one’s view on Brexit, it has now happened, a sensible agreement was signed with Europe, and investors can put a lot of the uncertainty behind them. From my perspective I think the UK will get its mojo back. It is probably better to start looking at the post-Brexit world as one where the glass is at least half-full, with the potential for UK economic growth likely to be better than the current cautious consensus assumes.

“Despite a reasonable rally towards the end of last year, UK equities remain unloved and good value – the UK market is trading at a modest 14 times, towards the low point of the last thirty years and a lot lower than most of its developed world peers.

“If you put together significant government investment in our infrastructure, a re-awakening of private investment, commitment to regional development, support for the Green economy, accelerated development of trade agreements with the rest of the world and other initiatives such as Rishi Sunak’s City of London ‘Big Bang 2.0’, the UK could start beating expectations.”

Simon Brazier, Ninety One UK Alpha

“I’ve not yet met any companies that say Brexit has been a positive for them. We have a very thin trade deal with no greater benefits compared with what we had previously. So I don’t think the deal alone is a big positive catalyst and it will take some years before there is a renaissance in UK business investment.

“After 2020, the economy is in dire straits and I’m of the opinion that 2021 won’t bring much solace. The UK economy is very much driven by the consumer and I believe it could take some time for confidence to recover, which will make it difficult for companies to grow.

“Some recovery stocks look attractive – so it’s a question of asking yourself which are the companies that will come out of the pandemic in stronger positions than they went in? Travel and leisure will be interesting as we come out of this – maybe with different spending patterns - I can’t see how low cost airlines will not recover, but transatlantic demand may fall if people travel less far and business trips are less frequent.”

David Stevenson, co-manager TB Amati UK Smaller Companies

“The ripple effects of Brexit are still with us when it comes to the trading logistics from the UK to Europe and back again. Hopefully the red tape and bureaucracy will get faster and easier to deal with over time.

“In the meantime, the UK looks like it is headed for a double dip recession and that doesn’t help. We need to get through that first and then, later in the year, identify those companies with strength of brand and market share which will be the winners. At that point we may increase our domestic-orientated exposure.”

UK bonds

Mark Holman, CEO, TwentyFour Asset Management

“Since the UK’s decision to exit the European Union in June 2016, we have seen sterling denominated assets trade with what we have referred to as a ‘Brexit premium’. The value of that premium is something we have monitored continuously and have sought to capture as much as possible without materially adding to risk profiles.

“With a last minute post-Brexit trade deal struck in the final days of 2020, we have seen the Brexit premium being eroded in 2021, albeit gradually. But a degree of Brexit premium does still exist – in part at least down to habit. A large part of the international bond buying community shunned sterling assets for several years, and perhaps are just not looking at them with the same intent as they did before the referendum.

“However, as demonstrated by the gradual increase in the value of the UK currency itself, it appears investors are beginning to return. As far as bond flows are concerned, we have observed highly oversubscribed order books for new sterling issues this year, as well as broader roadshow participation especially from overseas investors, indicating that they may be returning to the much unloved and undervalued sterling bond markets.

“When looking at relative value, the UK does still stick out to us as one of the best opportunities, and the rationale for this premium is fading, which is why we would expect to see sterling high yield at the top of the global high yield performance tables by year-end.”

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. The views expressed are those of the fund managers and do not constitute financial advice.

Published on 25/01/2021