Which HYP shares could do well with a no deal brexit?

[Jon277]

Let's start by saying I am NOT posting this for a discussion of the politics other than to say I believe a no deal brexit is now the most likely scenario.

To my mind there are two types of HYP shares that could do well -

1. Shares with a large amount of overseas earnings (the pound is likely to weaken further) and so they get a bounce. (BATS, GSK, AZN etc)

75% of FTSE 100 earnings are made overseas, however in 2017 just 7 shares were responsible for 49% of total dividends (source https://www.sharesmagazine.co.uk/article/ftse-100-dividend-delight-on-overseas-earnings-boost

2. Shares that do well in a slow down/recession - SOME bargain stores and supermarkets. However one problem with this sector is that Aldi and Lidl are not publicly traded so it is difficult to compare them against say TESCO and Morrisons...

Are there any other sectors that traditionally do well with a slow down, or is it a sinking tide lowers all boats?

However one further issue that is complicating all this for me is trying to assess how much of Brexit can have been built into the share prices? I keep seeing this phrase that Brexit etc is baked into the share price...
One assumption here is that FTSE share price is a leading rather than a trailing indicator of the economy - I'm not quite sure how to test that idea...


Jon

[idpickering]

Let's start by saying I am NOT posting this for a discussion of the politics other than to say I believe a no deal brexit is now the most likely scenario.

To my mind there are two types of HYP shares that could do well -

1. Shares with a large amount of overseas earnings (the pound is likely to weaken further) and so they get a bounce. (BATS, GSK, AZN etc)

75% of FTSE 100 earnings are made overseas, however in 2017 just 7 shares were responsible for 49% of total dividends (source https://www.sharesmagazine.co.uk/article/ftse-100-dividend-delight-on-overseas-earnings-boost

2. Shares that do well in a slow down/recession - SOME bargain stores and supermarkets. However one problem with this sector is that Aldi and Lidl are not publicly traded so it is difficult to compare them against say TESCO and Morrisons...

Are there any other sectors that traditionally do well with a slow down, or is it a sinking tide lowers all boats?

However one further issue that is complicating all this for me is trying to assess how much of Brexit can have been built into the share prices? I keep seeing this phrase that Brexit etc is baked into the share price...
One assumption here is that FTSE share price is a leading rather than a trailing indicator of the economy - I'm not quite sure how to test that idea...


Jon

An interesting question Jon. For me, I like to think I'm well diversified in my HYP, over 18 sectors, which I think gives me some 'safety', allowing me to not fret about whatever kind of Brexit we end up with. I agree with you regarding tobacco, pharmas, to which I would add utilities, oilies, and miners. Pretty much standard HYP fodder. Retailers, that's a different tale I think, which has been demonstrated on the market today.

Ian.

[dspp]

Moderator Message:
Folks,

Following an alert I have shifted this out of HYP Practical, into here, High Yield .. etc ... General.

By way of an explanation. If you just want to predict which of your (or others') HYP shares are going to do well or badly from any Brexit that may or may not occur, and you intend to take no action as a result but instead watch in detached intellectual wonder, then possibly it is a valid subject for HYP Practical. But if you have any interest, perish the thought, in doing some trading on the back of your purely intellectually motivated research, then that is trading. And hence not a subject for the HYP Practical board.

Hence the alert, as doubtless the thought of trading strategies being discussed is an upsetting thought for some HYP adherents, hence my moving this to HY ... General which is a safe space for discussions of this nature.

And please, you HYP types all know better than to keep poking and prodding away at this vexatious point.

regards,
dspp

[monabri]

On the assumption of "no deal".

The best position will be "available cash"..then wait to see which HYP shares fall the most. Why guess? On the announcement of " no deal"...the selection will be made for us by Mr Market.

The tricky part will be to decide if these businesses that the market is "frowning on" will recover and where one can benefit most - long term- yield wise.

[tjh290633]

We are into the realm of known unknowns. Nobody knows which way the exchange rate will move if we leave with no deal. Nor do they know which way it will move if we leave with a deal.

To my mind, the exchange rate is the most likely parameter to affect the outcome. If it rises, then UK earning shares will rise and shares with foreign earnings will fall, and vice versa. Will interest rates rise? What will happen in the Eurozone?

Trying to double guess the market is a fool's errand (with a small F).

TJH

[moorfield]

I'd hazard a guess not Retailers or Support Services! Otherwise, no idea.

I had thought recently to suspend top ups until (if) Brexit is done, but have changed my mind again. I think I will just start drip feeding monthly top ups in roughly equal tranches through next year. This is a habit I've wanted to try and get into anyway.

[dredd0]

Are there any HY Insolvency Practitioners?

[funduffer]

I'd hazard a guess not Retailers or Support Services! Otherwise, no idea.

I had thought recently to suspend top ups until (if) Brexit is done, but have changed my mind again. I think I will just start drip feeding monthly top ups in roughly equal tranches through next year. This is a habit I've wanted to try and get into anyway.

I have suspended top-ups for now, and have hoarded dividend cash to nearly 10% of my HYP value.

If we get a 'no deal' Brexit, I expect companies with mainly overseas earnings to do well, due to further potential £ devaluation. So that would be the likes of RDSB, ULVR, IMB

If we get a 'good' Brexit deal, then I expect companies with mainly UK revenues to do well, and the £ to possibly revalue. That would be the likes of housebuilders, retail, UK banks.

I am not clever enough to predict what is going to happen, although there are some tempting bargains around I must admit.

FD

[Charlottesquare]

I'd hazard a guess not Retailers or Support Services! Otherwise, no idea.

I had thought recently to suspend top ups until (if) Brexit is done, but have changed my mind again. I think I will just start drip feeding monthly top ups in roughly equal tranches through next year. This is a habit I've wanted to try and get into anyway.

I have suspended top-ups for now, and have hoarded dividend cash to nearly 10% of my HYP value.

If we get a 'no deal' Brexit, I expect companies with mainly overseas earnings to do well, due to further potential £ devaluation. So that would be the likes of RDSB, ULVR, IMB

If we get a 'good' Brexit deal, then I expect companies with mainly UK revenues to do well, and the £ to possibly revalue. That would be the likes of housebuilders, retail, UK banks.

I am not clever enough to predict what is going to happen, although there are some tempting bargains around I must admit.

FD

The pound revaluing upwards will not, imho, in itself directly significantly impact UK centric business entities for a UK holder of the shares except insofar as they impact their imports that they then resell in the UK, these will become cheaper, their earnings are already in Sterling as will be their dividends, the only currency impact re sales will be if they have foreign buyers in which case they become more expensive re their products.

I do accept the argument that it might give foreign investors more confidence in UK shares and their prices might rise , but that does nothing for earnings or dividends. A general increase in business confidence might stimulate UK demand, unleash some pent up investment, but for the HYP investor, looking for increased sterling dividends, it will only be really this latter that might stimulate earnings and dividends.

I agree with the converse though that holding overseas earning shares will have their dividend income either experiencing a further rise in sterling terms or a fall back based in Sterling terms.

I must say though that I am no longer an HYP investor, circa 85% of my holdings are now investment trusts and of them about 80% are overseas re their investment focus, I will certainly in Sterling terms see an income reduction with strengthening Sterling but this is a risk I am prepared to take and I will not be repositioning from where I went to in early 2016 before the Brexit vote, I feel far more comfortable with an international exposure.

[Avalaugh]

Under a no deal it is wrong to assume cash or stocks with foreign earnings will do well,
Reality may be more that nothing UK based does well,

The pound would go down so lose there,
Domestic focussed stocks would go down as import costs go up, and loss of confidence could cause issues,
Uk stocks with foreign earnings, here is the issue with Brexit, when we leave the EU - we also lose all our existing trade deals, so that means foreign trading will also come under some challenges as we move from trade deals with 60 other countries to WTO rules, this could impact earnings so drop those stocks too,

Best bet is to look at foreign shares not domiciled in the UK, eg US based global companies,

[Charlottesquare]

Under a no deal it is wrong to assume cash or stocks with foreign earnings will do well,
Reality may be more that nothing UK based does well,

The pound would go down so lose there,
Domestic focussed stocks would go down as import costs go up, and loss of confidence could cause issues,
Uk stocks with foreign earnings, here is the issue with Brexit, when we leave the EU - we also lose all our existing trade deals, so that means foreign trading will also come under some challenges as we move from trade deals with 60 other countries to WTO rules, this could impact earnings so drop those stocks too,

Best bet is to look at foreign shares not domiciled in the UK, eg US based global companies,

The country of listing does not really matter it is where the business earns its profits. HSBC may carry a UK listing but its earnings are predominantly via foreign subsidiaries and not in Sterling, same applies to say Shell etc, hence why their shares boosted upwards in Sterling terms following the 2016 vote, in Sterling terms their profits increased.

[Ashfordian]

Let's start by saying I am NOT posting this for a discussion of the politics other than to say I believe a no deal brexit is now the most likely scenario.

To my mind there are two types of HYP shares that could do well -

1. Shares with a large amount of overseas earnings (the pound is likely to weaken further) and so they get a bounce. (BATS, GSK, AZN etc)

75% of FTSE 100 earnings are made overseas, however in 2017 just 7 shares were responsible for 49% of total dividends (source https://www.sharesmagazine.co.uk/article/ftse-100-dividend-delight-on-overseas-earnings-boost

2. Shares that do well in a slow down/recession - SOME bargain stores and supermarkets. However one problem with this sector is that Aldi and Lidl are not publicly traded so it is difficult to compare them against say TESCO and Morrisons...

Are there any other sectors that traditionally do well with a slow down, or is it a sinking tide lowers all boats?

However one further issue that is complicating all this for me is trying to assess how much of Brexit can have been built into the share prices? I keep seeing this phrase that Brexit etc is baked into the share price...
One assumption here is that FTSE share price is a leading rather than a trailing indicator of the economy - I'm not quite sure how to test that idea...


Jon

The inclusion of the fact that in 2017 just 7 shares were responsible for 49% of total dividends for the FTSE100 is misleading unless your HYP strategy is to run it like a FTSE tracker and your share purchases are weighed the same way.

As for Brexit, its current likely outcome will be baked into share prices as the prices will be reacting to currency moves and the currency is moving according to the Brexit outcome.

Overall this is starting to feel like a buying opportunity, however we may need to wait for the US markets to settle down from having the froth blown off their prices if your HYP strategy takes account of asset price.

[Quint]

Let's start by saying I am NOT posting this for a discussion of the politics other than to say I believe a no deal brexit is now the most likely scenario.

To my mind there are two types of HYP shares that could do well -

1. Shares with a large amount of overseas earnings (the pound is likely to weaken further) and so they get a bounce. (BATS, GSK, AZN etc)

75% of FTSE 100 earnings are made overseas, however in 2017 just 7 shares were responsible for 49% of total dividends (source https://www.sharesmagazine.co.uk/article/ftse-100-dividend-delight-on-overseas-earnings-boost

2. Shares that do well in a slow down/recession - SOME bargain stores and supermarkets. However one problem with this sector is that Aldi and Lidl are not publicly traded so it is difficult to compare them against say TESCO and Morrisons...

Are there any other sectors that traditionally do well with a slow down, or is it a sinking tide lowers all boats?

However one further issue that is complicating all this for me is trying to assess how much of Brexit can have been built into the share prices? I keep seeing this phrase that Brexit etc is baked into the share price...
One assumption here is that FTSE share price is a leading rather than a trailing indicator of the economy - I'm not quite sure how to test that idea...


Jon

The inclusion of the fact that in 2017 just 7 shares were responsible for 49% of total dividends for the FTSE100 is misleading unless your HYP strategy is to run it like a FTSE tracker and your share purchases are weighed the same way.

As for Brexit, its current likely outcome will be baked into share prices as the prices will be reacting to currency moves and the currency is moving according to the Brexit outcome.

Overall this is starting to feel like a buying opportunity, however we may need to wait for the US markets to settle down from having the froth blown off their prices if your HYP strategy takes account of asset price.

US markets have had a good session today, all up circa 5%, hopefully the current slide has been arrested somewhat.