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Managing Brexit risk within an investment portfolio

The UK is set to leave the EU on 29 March 2019 but negotiations remain stuck on two key issues; the UK’s future trading relationship with the EU and how to avoid a hard Irish border. Ultimately, our view is that a deal will be reached - but only at the eleventh hour. This leaves plenty of room for uncertainty in the meantime and one cannot rule out the possibility of a no-deal Brexit. So how should investors go about managing this risk?

At NW Brown our policy has long been to manage equity portfolios that are well diversified by company, sector and geographic exposure. In this way we create robust portfolios that are well prepared for dealing with problems in any one company, sector or geography. In the example of Brexit, the largest threat remains the continuing weakness of sterling. If we leave without a deal then it is likely that sterling will weaken further. Should we therefore be worried about our exposure to the UK stock market? We do not think so. The UK stock market remains heavily skewed towards large multi-national companies that trade around the world and are simply listed here in the UK. In the event of further sterling weakness there is every chance that the UK stock market would perform well, thanks to the overseas earnings of the constituents translating into higher sterling earnings. Indeed, this is precisely what we saw happen in the aftermath of the Brexit vote on 23 June 2016. To this extent, the UK stock market provides a natural hedge against any woes that befall sterling and the UK economy.

If you are interested in discussing our investment management solutions with Jason, you can reach him on 01223 720298 or jason.butler@nwbrown.co.uk

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