UK equities could be a more attractive investment after the slump in sterling caused by Brexit turmoil, with the currency most recently rocked by Prime Minister Boris Johnson’s announcement of plans to suspend Parliament.
The British currency fell by more than 0.8% against the euro and dollar, trading at €1.10 and $1.22 respectively by 11.41am GMT, after Johnson said he would resort to proroguing Parliament to stop them getting in the way of a no-deal Brexit.
However, so far it has failed to severely impact the FTSE 100, which is up just 0.1%.
Commenting on the falls, Andy Scott, associate director at JCRA, said: "Sterling's recovery from multi-year lows versus the dollar and the euro over the past two weeks has been largely due to hopes that either the EU will agree to replace the Irish backstop with alternative arrangements, or Parliament can block a no-deal.
"Today's move by Johnson undermines Parliament's chances and sets the UK on a hard-Brexit course with arguably few prospects of avoiding such an outcome."
Gilles Moëc, group chief economist at AXA Investment Managers, said the recent noise raises the possibility of a no-deal exit from the EU.
"Our fundamental view, has not changed: it is unlikely that any positive outcome on Brexit, such as a deal, an extension or even a second referendum, can occur without the UK - and UK assets - first going through an exacerbation of the current crisis sentiment," he said.
"It is not constitutionally absolutely clear that those in parliament refusing a no-deal can actually, within the current time limits, impose their view on the government, just as it is also unclear whether changing the backstop would be enough for the Eurosceptic wing of the Tory party to support a new deal sponsored by Boris Johnson.
"New elections may be needed before any final clarification, and given the British 'first past the post' electoral system and the current dispersion of the electorate, uncertainty would be very high."
However, Adrian Lowcock, head of personal investing at investment platform Willis Owen, said the weak sterling makes UK shares a more attractive investment, as it makes them cheaper for international buyers and boosts the bottom line of companies that earn their revenues in foreign currencies.
He warned investors "also have to consider other factors such as the US-Chinese trade war and concerns of a global slowdown when making investment decisions," but said "the UK looks attractive in the long term at these levels, although it is likely to be volatile over the short and medium term".
Funds for uncertain times
As uncertainty continues, Lowcock suggests investors look at funds such as Troy Trojan, JOHCM UK Equity Income and Man GLG Undervalued Assets.
Sebastian Lyon runs the Troy Trojan fund "based on his philosophy that preservation of wealth is more important than growing assets", with the process targeting low volatility over the long term. "While it tends to lag strongly rising markets, it displays defensive qualities in more difficult times," Lowcock said.
Clive Beagles and James Lowen, who run the JOHCM fund, employ a contrarian approach, focusing on companies with an above-market dividend yield and reasonable growth prospects.
"The fund has had a long-standing bias to smaller companies which has proved to be a tailwind over the years but also adds to the fund's volatility," said Lowcock.
Finally, the Man GLG product, co-managed by Henry Dixon and Jack Barrat, has a value bias, but also includes elements of quality and positive earnings momentum.
Lowcock said: "Dixon has demonstrated his ability to consistently execute the investment process with discipline."