It’s a great question and one that, despite a great deal of uncertainty in the markets, has a longer answer than simply ‘buy Gold.’ There are plenty of options that aren’t simply safe ports in a storm and that could deliver decent capital gains as the UK re-adjusts to a new life ex-EU. While we’re not out and won’t be for a few years yet, markets are already re-aligning. And while it may seem an obvious answer to simply say ‘defensives,’ it’s important to know why they could now be good growth plays as opposed to pure income providers.

Safe Havens  

Precious metals Gold and Silver have always been seen as a risk-off investment and this has not changed – both are viableoptions and arguably even more attractive now given record low yields on low-risk government bonds (some even negative). Physical Gold is a real, tangible thing. You can hold it for real, in your hands. That’s a comfort to those who a) (understandably) don’t really understand the complex nature of many of today’s investment products and b) have little or no confidence in the financial system as it currently stands.

Of course, Gold and Silver are commodities that are mined by, well, miners. It’s no coincidence that shares in precious metals miners Fresnillo (FRES) and Randgold Resources (RRS) have risen every day since the Brexit vote, with percentage gains for the year to date eclipsing those of Gold and Silver themselves!

There are still growth opportunities in UK equities

It’s not all doom and gloom for UK equity markets, as was predicted by team ‘Remain.’ They, being the people running the country and presumably pretty up for being re-elected, have reversed their tone regarding the UK economy. Funny that.

Nonetheless, it’s important to note that many of their predictions (and those of the neutral Bank of England) may well yet come true. For instance, the GBP has weakened considerably – now trading at new 30-year lows against the USD. GBP could get even weaker now that the Bank of England has pledged to stimulate the economy this summer. The property market is looking more toppy every day and Brexit has undoubtedly dealt a blow to global growth sentiment, given that the EU could well implode in the years to come.

Over the next two or so years, there will be pressure on UK-focused mid-cap companies. This is evident in the fact the has already fallen by about 10% – investors are currently selling the UK’s economic future, not buying it! A weak pound sterling should serve to benefit exporters but the UK needs to have trade deals in place first. Plenty of the world would like to trade with the UK but this could take years to sort out. In the meantime it’s hard to forecast upside with so much near-term uncertainty concerning the UK’s future relationship with the world’s largest trading bloc.

So where are UK investors heading? Many are going into bonds, sending yields plunging. That’s great, but as the word ‘plunging’ suggests, they’re not going to yield much if anything. It’s also unnecessary right now because there are so many better alternatives for the risk-averse investor.

Back to equities, and the internationally focused UK 100 index has some fantastic opportunities currently – partly because it’s home to some of the world’s biggest multinational defensive stocks but also because many of those are benefitting from favourable FX translation. Royal Dutch Shell (RDS), BP (BP.), British American Tobacco (BATS), GlaxoSmithKline (GSK) and others pay their bills in GBP while booking revenue in USD. It’s these companies in fact that are currently driving the UK’s blue chip index.

Where should I invest right now?

So we have three avenues that have potential to actually return something. Firstly, physical safe havens Gold and Silver and their respective mining stocks. Secondly, defensive stocks. Thirdly, multinationals that are currently being re-valued on account of a new FX environment.

The stocks mentioned above are by no means an exhaustive list. To find out which stocks are driving the UK 100 on a daily basis and which could present some great opportunities despite all the global uncertainty, access our research here.

Have a great day!

Augustin Eden, Analyst (6 July)