How I am protecting my investments from the Brexit impact

That Covid-19 dragged the economy down is well known. But I think this big challenge has minimised another issue that could crop up in the coming months. And that is Brexit’s impact on the UK economy. 

Shrinking exports to the EU

Consider the latest trade data. In the first three months of 2021, the UK’s goods exports fell by 8.7% from the three months before. This is nothing surprising. We were still in lockdown early in the year and other countries were struggling too. However, the red flag for me was that the exports to the European Union (EU) fell hard by 18.1%. Compared to this, exports to the rest of the world actually increased by 0.4%. 

This means that if the numbers for the EU were not so dismal, UK’s export performance could have looked much better. Now, we do not know how much of this was because of the pandemic and how much because of Brexit. But from these numbers, I think we can conclude that Brexit probably contributed to it. 

Three Brexit-proof investments

So I am trying to de-risk my stock investment portfolio from any Brexit-related fluctuations in three ways. One, I can buy stocks of multinational companies that are not dependent on the EU market. A stock like the construction company Ashtead is an example, which I have long liked. Around 60% of its revenues come from the US. Moreover, with massive expected infrastructure spends in the US, it could be in a good place to make gains. 

Two, I can buy safe UK shares. These are companies that are essentially immune to economic fluctuations. So even if there is a dent on the UK’s growth because of reduced trade with the EU, they remain unaffected. Examples of these would include FTSE 100 utilities like Severn Trent, which provides water and wastewater services. For the year ending 31 March 2021, for instance, its post-tax profits actually increased. And this in a year when many FTSE 100 companies turned loss-making.

And three, I can focus on stocks that cater to the UK market, which are likely to be less impacted. I would explore pub stocks like Wetherspoon. While such UK shares have been impacted a lot by Covid-19, they have reopened. Over time, as the pandemic recedes further, I reckon their fortunes could improve even more, Brexit or not. 

Staying cautious

I would keep in mind that Brexit could impact some stocks negatively, including financial services companies. There is still no Brexit deal on these. I would keep this at the back of my mind before buying these kinds of stocks. It is possible that there may be no impact on them at all, but we do not know that for sure at present. 

Until we know more about the effect of Brexit, I will focus on stocks that I think will not be impacted by it much at all.