The markets have responded positively to the new UK-EU trade and relationship treaty although it was widely anticipated by investors that the two sides would be able to reach some form of agreement by the end of December.
What does the Brexit deal mean for investors?
In the event the deal was more wide-ranging than expected although it excludes key sectors such as financial services. Perhaps its main significance is that the UK avoids the disruption of a “No deal” scenario, which would have caused disruption for sectors such as car manufacturers and agriculture as well as leaving some bad feeling with our EU neighbours.
The new trade arrangements will still lead to more paperwork for companies moving goods across the border, but now that there’s more certainty around our ongoing relationship with the EU businesses should feel more confident about increasing investment in products and staff. Its also important for investors to note that new opportunities could emerge from some of the free trade deals the government is negotiating with countries such as the US.
Another possible longer-term impact of the deal is on UK politics. There is some discontent in Northern Ireland over the new arrangements that have now come into force, but perhaps more significant is the prospect of Scottish parliamentary elections in May which could again result in calls for another independence referendum if the SNP does well.
Right now the market’s attention is focused more on other issues such as the political situation in the US and the impact of the Covid pandemic on the global economy, but investors are already beginning to look at where there is value to be had in the market and that will continue as vaccines are rolled out more widely and restrictions are hopefully removed later in the year.
Many of the larger global multinationals in the FTSE 100 will be less affected by the deal than smaller and mid-sized companies who trade heavily with the EU but the ongoing uncertainty means diversity of investments is more important than ever. Active funds can react to events and search out value and opportunities where they occur in a way that index-tracking funds cannot. One such is Monks Investment Trust, a global fund aiming mainly for capital growth which has established a good long-term track record by investing across both developed and emerging countries and in a range of different sectors.
Investors focused more on the UK could consider the CFP SDL UK Buffettology fund which is run by a very experienced manager in Keith Ashworth-Lord and applies a rigorous selection process to potential investments. That leads to the fund holding high quality businesses and its performance over the years proves the value of that approach.
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