HSBC and Vodafone are among the most popular British companies to invest in
The economy continues to surprise and defy the doomsayers by growing steadily in the wake of the EU referendum.
The National Institute of Economic and Social Research has predicted that GDP will grow 1.7 per cent this year and accelerate in 2018, with growth hitting 1.9 per cent.
There are challenges too, as negotiating our exit from the EU will not be easy, while low savings rates, rising inflation and stagnating wages hit ordinary people in the pocket.
Britain is also exposed to foreign threats, such as the potential impeachment of US President Donald Trump, or a slowdown in China.
None of that will deter patriotic investors, who will want to cash in on the success of UK Plc. So what are your options?
Michelle McGrade, chief investment officer at stockbroker TD Direct Investing, says its research shows investors are becoming steadily more confident about Brexit: “Initially they were a bit spooked by the uncertainty, but as things have become clearer, sentiment has become more positive.”
She says: “We asked top British fund managers to name the stocks they rely on to provide a solid return and some familiar names dominated.
“There are some great British companies to invest in right now.
“Many are big global names listed on the FTSE 100 which generate more than three quarters of their earnings overseas and have benefited from recent weakness in the pound.”
British Telecoms and Vodafone and two of the most popular UK stocks
Their top 10 most popular UK stocks are oil majors BP and Royal Dutch Shell, pharmaceutical giants GlaxoSmithKline and AstraZeneca, Lloyds Banking Group and HSBC, cigarette makers British American Tobacco and Imperial Brands, and telecoms companies BT Group and Vodafone.
These are the types of business that the UK economy will be relying on to make a success of Brexit.
If investing in individual companies is too risky, consider taking out a low-cost tracker fund targeting top UK stocks instead, such as the HSBC FTSE 100 Index or the iShares FTSE 100 exchange traded fund (ETF).
McGrade says you could then diversify by investing in a fund run by a great British fund manager who looks beyond the FTSE 100 to invest in smaller companies as well.
She rates Mark Slater, who manages MFM Slater Growth, and has produced an average return of 12.6 per cent a year for the past 10 years. Nick Train, at CF Lindsell Train, delivered an annual return of 11.69 per cent.
Other top UK-focused managers include Anthony Cross at Liontrust Special Situations, Francis Brooke at Troy Trojan income and Neil Woodford at CF Woodford Equity Income.
Adrian Lowcock, investment director at wealth manager Architas, says Brexit initially hit smaller firms, but as confidence picks up, these may swing back into favour: “Smaller companies can also be more nimble, exploit niche markets and have a stronger self-help culture.”
Tritax Big Box rents out distribution warehouses to retailers such as Amazon
He tips investment fund Franklin UK Smaller Companies, which has grown an impressive 121 per cent over the past five years, according to TrustNet.com.
Alternatively, Threadneedle UK targets larger companies with a long track record and resilient cashflow and returned 90 per cent over the same period.
For those willing to take the plunge on individual stocks, Hargreaves Lansdown senior analyst Laith Khalaf picks out Lloyds Banking Group.
“It is plugged into the UK economy because of all the loans it makes to UK consumers and businesses.”
Lloyds was bailed out in the financial crisis, but is well on the road to recovery, while the Government has almost sold off its entire stake.
He adds: “Lloyds looks in decent shape and its dividend is forecast to hit 5.2 per cent next year.”
Khalaf also tips a real estate investment trust (REIT) called Tritax Big Box, which rents out distribution warehouses to retailers such as Tesco, Next and Amazon, and should cash in if the UK economy booms: “It should also benefit from the rise of e-commerce as more of us shop online rather than on the high street.”
Mould tips maternity store Mothercare to recover
However, he says you should also invest beyond the UK to give you some diversification: “That way if the domestic economy takes a turn for the worse you have irons in other fires.”
Russ Mould, investment director at broker AJ Bell, says a number of British firms that were hit by the fall in the pound should now rebound: “The UK economy has proved more resilient than many feared and sterling has begun to recover some lost ground.”
If the pound continues to rally, this will make importing raw materials cheaper and reduce inflation, boosting consumer spending.
Mould tips high-street fashion chain Next, home furnishings company Dunelm and baby and maternity store Mothercare to recover.
“All three have warned of price hikes to compensate for increased raw material costs, so a stronger pound could help them financially and boost their share prices,” he adds.
Investing in stocks and shares always contains an element of risk, so make sure you understand the dangers, because even the best of British are not immune to a global economic shock.