McCue Wealth Management Ltd

Partner Practice of St. James's Place Wealth Management


to help you make informed decisions about your wealth

Brexit opportunity?

27 April 2018

Last week’s Lords vote highlighted how many uncertainties remain – yet Brexit fears may have created strong UK buying opportunities.

Barely a week goes by in which Brexit doesn’t loom large on the political agenda.

Yet with 11 months to go until the UK’s formal departure from the EU, much about the nature of that exit remains unclear. Just last week, the Lords voted through an amendment that adds to the pressure for Theresa May to consider keeping the UK in the customs union.

Major political uncertainties of this nature undoubtedly have the capacity to impact investor sentiment, particularly in the short term.

“The UK equity market was weak in the first three months of the year, dragged down by continued Brexit uncertainties and some signs that the outlook for UK growth has deteriorated somewhat,” said Nick Purves of RWC Partners, manager of the Equity Income fund. “A significant number of companies, and especially those most exposed to the UK consumer, have reported that trading conditions are also being adversely affected by the decline in real wages, which resulted from the Brexit-induced fall in sterling at the end of 2016 – but, of course, wage growth has ticked up significantly in recent months.”

Indeed, irrespective of any of the merits or drawbacks of Brexit itself, it is clear that some investors are unnerved; primarily by a perceived delay in policy decisions. On that score, the agreement of a transition period undoubtedly acted as a sop to markets – not least bond markets.

“Brexit negotiators agreeing to a transition period until the end of 2020 should be supportive of sterling and domestic credit over the medium term,” said Gary Kirk of TwentyFour, co-manager of the Diversified Bond and Strategic Income funds.

Value opportunities

Moreover, although a perceived lag in policy making remains – and may even extend beyond Brexit issues – several fund managers believe that UK equities are undervalued relative to equities in other leading markets. Over time, they expect that disparity to close, as global investors catch up with the corporate reality on the ground.

“UK equities have the potential to close the underperformance and undervaluation that has accrued due to Brexit and politics,” says Adrian Frost of Artemis, manager of the UK & International Income fund. “Over time, worries over these areas may subside. In the meantime, we anticipate that the recent strong upturn in M&A activity will continue. In turn, this may cause the government to agonise further as to its attitude and policy towards such matters. Current policy resembles the Hampton Court Maze on a foggy day.”

Even allowing for any policy fuddle, UK markets have taken a significant hit in recent months. In the first three months of 2018, the S&P 500 fell around 2% and the MSCI Europe ex UK by 4%: the FTSE 100, however, dropped by 8%; although it has recovered more than half of that ground in April.1 Indeed, overseas investors started the year with their allocation to UK stocks at a three-decade low , while sterling struck a 31-year low against the dollar. In this correlated dip in UK asset prices, some managers see an opportunity.

“Financial markets had a strong start to 2018 but the UK remained out of favour,” said James de Uphaugh of Majedie, manager of the UK Growth fund . “Against a somewhat subdued macro backdrop, we see some very attractive opportunities in UK stocks – large, defensive companies, trading on historically low valuations, many of which are undergoing operational change.”

Indeed, corporate earnings in the UK have been strong in recent quarters – including over the first three months of 2018.2 This trend may also imply an underlying economy that is in relatively good shape, despite the dip in the rates of investment and growth seen since the referendum, and the slowing of the growth data in the first quarter of this year.3 Neil Woodford of Woodford Investment Management believes that both UK assets and the broader UK economy have been serially undervalued since the referendum. As a result, he believes opportunities are plentiful, so long as investors can show patience.

“We believe the market consensus is far too cautious about the outlook for the UK economy – the fund has increased its exposure to some very high-quality UK businesses, which trade on eye-catchingly low valuations, and where future growth expectations are too modest,” says Woodford, who manages the UK High Income fund. “These include Barratt Developments and RBS. New holdings that we’ve bought this year for similar reasons include Lloyds and Bovis Homes.”


Artemis, Majedie, TwentyFour, RWC Partners and Woodford Investment Managers are fund managers for St. James’s Place. 
The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested. 
The opinions expressed are those of the managers referenced and do not constitute investment advice. This is not a recommendation to purchase, sell or subscribe to financial instruments, an offer to sell investment funds or an offer of financial services. This does not constitute a Financial Promotion as defined by the Financial Conduct Authority. No financial decisions should be made on the basis of the information provided. The views are not necessarily shared by other investment managers of St. James's Place Wealth Management. 


1 Source: Bloomberg

Source: FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE's express written consent.
Source: MSCI.  MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein.  The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products.  This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.
© S&P Dow Jones LLC 2018. All rights reserved.     




We value your opinion

We are always looking for ways to improve our service, so if there is something you think we could do better, or that you think we are doing really well, we would love to hear from you.

The only thing we ask is that you do not include any personal information, like account numbers, in your email. If your matter is urgent, needing our personal attention, please contact your local office.

You may be contacted to follow up on your comments.


If you wish to complain about any aspect of our service, we will do what we can not only to meet, but exceed your expectations of a swift and thorough resolution. More details of our complaints procedure can be found here.