How I plan to Brexit-proof my stocks and shares ISA
With hardline Brexiteers sounding more like the Walmington-on-Sea Home Guard every day, it’s hardly surprising if private investors are getting nervous.
If we walk away from the EU with no agreement in place, an economic panic is almost certain — and then where would we be? I’m hoping common sense will prevail, but I’m also thinking of ways to reduce any adverse effects on my investment portfolio.
For me, the key approach is to think internationally, and going for FTSE 100 stocks will pretty much have that sorted anyway as the great majority of our top companies are global in their outlook. But you might want to keep away from domestic-focused stocks like banks and housebuilders.
I’m not shunning them myself as the contrarian in me thinks they’re oversold due to excessively pessimistic sentiment. But my investment in Lloyds Banking Group hasn’t been a roaring success so far, and if sleeping easy at night is key for you, then you might want to avoid those two sectors.
Among the more obvious international contenders are, I think, our top oil and pharmaceuticals companies, and I see BP, Royal Dutch Shell, AstraZeneca and GlaxoSmithKline as being pretty much immune to the vagaries of the UK economy.
Only around 25% of AstraZeneca’s turnover, for example, comes from the UK. GlaxoSmithKline is even better insulated, with a mere 5% or so generated on these shores.
Those few bring me to two key considerations, world commodity prices and the value of the pound. Firstly, the harder our Brexit, the worse the impact on the currency is likely to be. But a falling pound should actually see share prices rising, as they reflect worldwide demand and are more closely tied to the US dollar than any other currency.
But more than that, commodities are priced in dollars, with the vast bulk of valuable dirt produced and consumed outside our islands. That means producers of oil, metals and minerals should be seeing the value of their revenues rising in sterling terms — and that should mean bigger profits and higher sterling share prices.
On that score, I’m happy with my investment in Sirius Minerals. It’s very much a UK-based company (with its potash assets in Yorkshire), but the sale agreements it has in place are with customers scattered around the globe. Sirius faces risks, but I don’t see Brexit as one of them.
If you want more than ‘boring’ FTSE 100 shares, an option is to go for globally-based investment trusts. I love the idea of investment trusts anyway, where shareholders own all of their assets and there’s no conflict of interest between them and customers — because they’re one and the same. And they can provide a nice way to gain exposure to smaller global companies.
Lindsell Train Investment Trust, for example, has consistently been a strong performer, investing in a wide range of assets. Its shares are trading at a sizeable premium to net asset value, mind, so a lot of people probably have the same idea.
Witan Investment Trust and F&C Global Smaller Companies are two more with successful records, giving you options to target larger multinationals or smaller companies respectively. And there are plenty more great investment trusts out there.
Just remember one thing when it comes to Brexit — don’t panic.
Alan Oscroft owns shares of Lloyds Banking Group and Sirius Minerals. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.