Worried about a no-deal Brexit? Here are the FTSE 100 stocks I’d buy to protect myself

Brexit has impacted the FTSE 100 significantly since we first heard of the term back in 2016. The short-term move after the referendum saw the FTSE 100 flying higher, thanks to a weaker British pound. As a lot of the FTSE 100 constituents are net exporters, the weaker pound was actually a good thing for business. 

Since 2016, the FTSE 100 has continued to move sharply whenever big Brexit news happened. You can take a look the reaction in March 2018 to the confirmation of a transition period, and the moves that led to a general election in December 2019. And now, the threat of a no-deal Brexit has risen, with the dinner last night between PM Boris Johnson and the EU’s Ursula Von Der Leyen ending with no agreement. Well, they did agree something — that the two sides are a long way apart and will extend talks until Sunday!

With the risk of no trade deal rising, there are several things I can do to protect my stocks portfolio from a large drop in value.

Rebalancing

On those occasions when Brexit headlines really moved the FTSE 100, the big movers were the domestic companies. Examples include Lloyds Banking Group, Taylor Wimpey and British Land. I don’t own stock in these firms, but if I did, I’d be reducing my exposure and rebalancing my portfolio. This doesn’t mean selling out completely, but I’d trim down around 25% of my stake and rebalance the proceeds into more international companies.

For example, I’d look to buy HSBC with the proceeds from Lloyds, and Pershing Square with proceeds from British Land. These two companies should be less impacted by Brexit as the domestic alternatives. If a no-deal Brexit really does happen in the coming weeks, then this rebalancing could save me from some unnecessary losses.

Defensive FTSE 100 Brexit choices

If I didn’t want to rebalance, then the other option I’d consider is using fresh cash. With this new money, I can look to invest in defensive FTSE 100 stocks before Brexit stirs things up.

For example, take a look at Diageo. I recently wrote a piece about how I like the business as a long-term investment. It doesn’t have a particular reliance on the UK for revenue. Diageo is a global firm that has diversification not only by region, but also by products. In some markets, spirits are more popular, in others the focus is on beer. The spread of revenue sources means that even if we do get a no-deal Brexit, this FTSE 100 company is unlikely to be harshly impacted. CEO Ivan Menezes even said in an interview last year that “we can handle no deal”.

Ultimately, there are several things I can do right now to make sure my portfolio is somewhat protected from a no-deal Brexit. Obviously it can never be perfect, and the potential FTSE 100 slump would still be likely to negatively affect me for a while. But rebalancing and investing in defensive stocks, along with having a long-term mindset will definitely help.