Can investors profit from the new Brexit ‘High 50/Low 50’ indexes?

We don’t know whether Brexit will deliver rewards for UK-focused stocks or those that look beyond the UK, but we have some ideas that might help.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Stock index provider Bats has launched two new indexes designed to act as barometers for assessing how Brexit is impacting UK companies. As it notes: “Currency movements and changes to the cost of buying or selling goods and services are both fundamental elements associated with Brexit and will have a material impact on companies’ profitability over the coming years.”

The two new indexes — UK Brexit High 50 and UK Brexit Low 50 — are derived from its existing UK 100 Index, which tracks the top 100 UK-listed companies based on market capitalisation, much the same as the FTSE 100.

The UK Brexit High 50 consists of the 50 companies that earn the largest portions of their revenues from the UK (on average in excess of 70%). These include the likes of Morrisons, Persimmon, Royal Bank of Scotland and United Utilities.

Meanwhile, the UK Brexit Low 50 contains the 50 companies that earn the smallest portions of their revenues from the UK (on average 10%). Among these are BP, Burberry, GlaxoSmithKline and Rio Tinto.

Contrasting performance

The High 50 and Low 50 have delivered markedly contrasting performances since the Brexit vote in June last year. Having plunged nearly 20% in the aftermath of the result, the High 50 has gradually recovered its losses and is currently trading back at its pre-vote level for a 0% return over the period. The Low 50 has posted a stunning 29% gain.

Unfortunately, whether you’re convinced UK domestic-focused stocks are now undervalued or whether you’re confident foreign earners will continue to outperform, there are no funds or ETFs that track the High 50 and Low 50.

Contrarian opportunity?

However, if you’re looking for a one-stop-shop to play the High 50 theme, renowned fund manager Neil Woodford’s Income Focus Fund could be a good choice as something of a proxy. This is because Woodford is convinced that “a contrarian opportunity … has emerged in domestic cyclical companies where valuations are too low and future growth expectations far too modest.”

He’s positioned the fund, which launched in March this year, to capture this opportunity. As of the end of October, nine of his top 12 holdings featured in the Bats UK 100 Index. The High 50/Low 50 breakdown was as follows:

  Index
AstraZeneca Low 50
Legal & General High 50
Imperial Brands Low 50
Lloyds High 50
Barratt Developments High 50
Taylor Wimpey High 50
Next High 50
SSE High 50
Aviva High 50

The preponderance of stocks with a UK domestic focus among his blue-chip picks is equally evident among his mid-cap and smaller company holdings. Like the High 50 Index, the performance of Woodford’s fund has been lacklustre to date. However, if he’s right about the contrarian opportunity, both the index and his fund could outperform the wider market in the coming months and years.

Of course, not all investors share Woodford’s view. Indeed, some are very keen to positively avoid stocks with a UK domestic focus. Either way, though, the two index constituent lists on the Bats website (linked to near the start of this article) are a useful resource for investors — even if you’re seeking to hedge your Brexit bet with a balanced portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca, BP, Burberry, Imperial Brands, and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Start supercharging passive income with REITs!

Are REITs the ultimate investment for boosting income generated from a portfolio? Zaven Boyrazian explores some of the most lucrative…

Read more »

Investing Articles

Should I buy more Rolls-Royce shares near 500p?

This investor is wondering whether to buy more Rolls-Royce shares this summer or to just stick with those he already…

Read more »

Investing Articles

After its big fall, is the National Grid share price dirt cheap now?

The National Grid share price fell sharply in reponse to new rights issue plans. But is it an even better…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Starting in June, I’d invest £1,000 a month to aim for a £102,000 second income in retirement

This author highlights a less well-known FTSE 100 stock that could help his portfolio generate a very big second income…

Read more »

Investing Articles

Down 47% in 5 years, is the IAG share price due a bounce?

Many companies in the travel sector have seen fierce rallies since 2020. But with the IAG share price still down…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Despite its drop, I reckon this is one of the best FTSE 100 stocks to buy and hold!

The FTSE 100 has been climbing in 2024 but this favourite of our writer's has been falling. Despite this, she’s…

Read more »

Investing Articles

AI stocks vs EV shares; which is the best sector for me to invest in?

Jon Smith considers the recent rally in AI stocks and weighs up whether to allocate more money there versus EV…

Read more »

A graph made of neon tubes in a room
Investing Articles

Do Greggs shares have even more growth ahead?

Greggs shares have seen some solid growth in the last few months, as the economy shows positive signs. But is…

Read more »