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Investec AM's Brazier warns of second EU referendum

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Investec AM's Brazier warns of second EU referendum

Simon Brazier (pictured), manager of the Investec UK Alpha fund, has warned that the chance of a second referendum should not be discounted as the election result makes it likely that Brexit negotiations will take longer than the two year timeline. 

'Negotiating Brexit on a two year time line was always going to be an uphill task. This election result now makes it even more likely that Brexit negotiations will take longer. The longer it takes, the higher the chance of a second referendum,' he said. 

Although there is now increased uncertainty, for him, the fundamentals on the majority of companies have not changed. 

'At the margin a slightly weaker currency may put pressure on those domestic stocks that have input costs from abroad (mainly retailers), although provides support for those companies that report in US dollars.

'For the economy, the result further supports our view that UK economic growth will remain weak. Uncertainty delays business investment and the pressure on sterling reduces real incomes for consumers as we import inflation,' he said. 

In portfolios, he said that there will be little to change, however, and he remains focused on companies that can reinvest cash at high rate of returns.

Among the UK Alpha fund’s Top 10 holdings are Royal Dutch Shell, British American Tobacco and BT.

Mundy & Stopford

Alastair Mundy, manager of the Investec Cautious Managed and UK Special Situations funds said that he will be adding to more domestically-exposed UK equities if there are further share price falls, following the shock election result which has created increased uncertainty in the markets. 

‘Equity valuations remain high (somewhat paradoxical given how often we are told that markets hate uncertainty) and we are keeping our powder dry for cheaper buying opportunities,’ Mundy said.

In contrast, John Stopford, manager of the Investec Diversified Income fund and head of multi-asset income at the company is looking for businesses outside the UK.

In UK equities, the manager holds mainly exporters but the majority of the equity exposure is outside the UK.

‘We have almost no UK bond exposure. Having a global opportunity set and no geographic bias allows for the potential to take opportunities elsewhere and avoid taking much UK linked exposure in uncertain times,’ he added.

Among his top equity holdings in the Diversified Income fund are Siemens, Unilever and Microsoft. Almost 30% of the fund is allocated to North America, with just around 13% in the UK. 

He added that the multi-asset portfolios bought options on the pound to benefit from volatility and have a ‘modest’ short sterling position.

 

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John Stopford
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46/50 in Mixed Assets - Absolute Return GBP (Performance over 3 years) Average Total Return: -2.18%
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