Brexit is back. There are just 36 days to reach a deal after Prime Minister Boris Johnson imposed a deadline to get a deal done with the EU but with the two parties far apart, a "no trade deal" scenario is increasingly possible and investors need to prepare.
Savers have been spared the Brexit debate as stock markets squarely focused on coronavirus. But the most recent burst back into the headlines should jolt investors into action.
Britain leaving the transition period with no firm trade deal is likely to bring uncertainty for businesses and consumers. It will also likely have a damaging effect on the value of the pound.
This is never good for markets, but there are some funds that have proven to thrive in such scenarios.
Brian Dennehy of investment shop FundExpert, said the Government will have to act fast and efficiently to tackle both Brexit and Covid-19. This, he said, helps provide a guide of where to buy.
“Investors should anticipate Government action and buy any stocks that will benefit from this that are already cheap,” he said
British stocks are both cheap and overlooked, with some companies 20pc to 30pc cheaper than they were at the start of the year.
“Many are smaller companies and a decent choice of fund to access these would be Merian UK Smaller Companies Focus,” he said.
Run by Daniel Nickols since 2004, the portfolio has a good track record but has taken a beating in 2020. Mr Denney said it would make it a great option in future.
Others were less sanguine on the prospect of a no deal, and suggested investors ignore Britain entirely.
Emma Wall of fund shop Hargreaves Lansdown said investors should “hedge their bets” against a no-deal Brexit by making sure they have exposure to as broad a geographical universe as possible.
“If it really is a total unknown on what future deals may be brokered between Britain and the other 194 countries of the world, then investing in the best companies from across the globe should cover all bases,” she said.
One fund that has impressed in recent years is the smaller companies investment trust Edinburgh Worldwide. Fund manager Douglas Brodie looks for companies that can continue to grow their earnings regardless of the global economy and has done well in investing in technology stocks and other disruptive companies.
"The managers aim to unearth the market leaders of the future and have a good track record in doing so, investing in Tesla long before it became the household name it is today," Ms Wall said.
The trust also invests in private equity, allowing it to buy up-and-coming companies before they are listed on the stock exchange. While this carries a lot of risk it can also have great reward for investors.
Retreat to bonds
Richard Carter, of wealth manager Quilter Cheviot said the biggest impact on British companies would be the effect a no-deal Brexit would have on the value of the pound, which would weaken.
For investors, this would raise the share prices of overseas companies, while cheapening the British stock market to overseas investors. This makes a global stock market fund a must for any investor.
Outside of global stocks, he said that index-linked gilts should also do quite well in a no-deal scenario. The Bank of England would likely be forced to print more money (quantitative easing) – a policy designed to stimulate growth in an economy – while a weaker pound would increase short-term inflation as the cost of overseas goods would rise.
His preferred fund would be the Allianz Index-Linked Gilt fund, run by Mike Riddell. Although the fund is only two years old, Mr Riddell has invested in bonds for 15 years and has a wealth of experience, consistently beating his peers over his career.
Gold is glistening
Another way to mitigate the risk of a no-deal Brexit is gold. Rob Morgan of Charles Stanley Direct, a fund shop, said although the precious metal has had a very strong 2020, up 24pc this year so far, British investors could still find solace in the metal.
Gold is priced in dollars, so a weaker pound would make the price of gold rise in relative terms.
“BlackRock Gold & General would be my fund pick,” he said. The fund, managed by Evy Hambro, buys shares in mining stocks. At the moment, the portfolio is more than 90pc invested in gold producers, with the remainder in miners of silver and platinum.
A final option is to avoid picking a fund that will be affected – either positively or negatively – and to focus instead on long-term themes that are unlikely to be tampered with by politicians.
Pascal Dowling, of investment trust analysts Kepler, said environmental infrastructure fund Greencoat UK Wind was a good example.
“Its returns are entirely disconnected to the rest of the market and around half of its profits are directly linked to inflation which, if a no-deal Brexit happens, could gently increase,” he said.
The trust generates a yield more than 5pc, making it a good bet for those seeking income. It is also a long-term beneficiary of the move towards sustainable energy, which should not be impacted by geopolitics.