Brexit funds review, 2 years on – surprisingly good

The Telegraph got in touch this week to get our ideas on UK shares that are cheap.  In the run up to the second anniversary of the Brexit vote you may be wondering the same thing.  But when we approach investing, we’re not so much looking at what might be cheap (something is always cheap) but rather what is motoring, despite expectations and gloom-ridden frontpage headlines.

Which fund sectors are motoring?

Looking at sectors that have performed well since the Brexit vote there are plenty of examples that run counter to the common stories pushed by the mainstream media (table 1).  China is the best performing sector (+80%).  We were told that China would collapse under the weight of their debt but for the moment they seem to be coping rather well.

Technology isn’t such a surprise, though concerns over valuations have abounded for more than two years.  Japanese Smaller Companies? They have been perennially unloved.  It’s difficult to get the press to consider Japan in spite of the fact that it’s under-researched and is one of the few developed markets that still offers value (+65%).

The UK was supposed to flounder post-Brexit but UK smaller companies have been buoyant (+56%).  And Europe?  While there has been a wave of populism this hasn’t skuppered the Continent.  European Smaller Companies are up 54%.   In the US, Donald Trump’s presidency hasn’t signaled the end of the US stock market rise.  US Smaller Companies are also up 53%, which is a clear vote of confidence in their domestic economy.

That performance isn’t just a result of sterling weakness.  That only accounts for 1 or 2% of the total returns over the period since the 24th June 2016 (the day after the vote).

How would you have seen through the gloom-ridden headlines to identify these opportunities?  What most investors need is a simple process – like Dynamic Fund Ratings – that will do the work for them.

Star funds shining through the gloom

The top 10 performing funds from the main UK sectors (UK All, UK Equity Income, UK Smaller Companies) are unsurprisingly dominated by smaller company funds (7/10).  The three remaining funds are two with a preference for smaller companies and one that focuses on mid cap investments (Table 2).

Tech is big winner in the Global Top 10  (Table 3), with 3 funds.  The Chinese, Global and North American funds also have a strong tech focus, featuring big tech companies from the US (Facebook, Amazon, Apple, Netflix & Google) along with Alibaba, Baidu and Tencent from Asia.

For instance, the latter three Chinese companies make up 23% of the Baillie Gifford Greater China fund.  The beauty of a process like Dynamic Fund Ratings is that it will take you into sectors with momentum in the shorter term, making it highly probably that you’ll outperform in the longer term.  The Dynamic Global Portfolio is a great example, see new analysis here.

The world certainly has bigger fish to fry than to fret over the UK’s little local difficulty.  Clearly there are opportunities in the UK and globally, in spite of the gloom in main headlines. 

Anyone who has been sitting on their hands waiting for stuff to be cheap has missed a great party.

ACTION FOR INVESTORS

• Don’t let gloomy headlines get you down…
• …there are always opportunities.
• And a simple, robust process is crucial to maximising your growth potential.

FURTHER READING

• NEW PORTFOLIO: Global II.  Outstanding and consistent performance
• From Emperor Trump to Lewisham East via Qingdao
• When to sell

Table 1: Main UT & OEIC sectors (24/06/2016 to 13/06/2018)

Table 2: UK Funds (24/06/2016 to 13/06/2018)