Commerce will continue in the UK regardless of whether we have a ‘hard’ or ‘soft’ Brexit and there are still plenty of opportunities in the market despite uncertainty, according to AXA’s Nigel Thomas (pictured). 
The FE Alpha Manager, who has run AXA Framlington UK Select Opportunities since 2002, says there has been a knee-jerk reaction to the shock results of the EU referendum.
He notes that this has included further quantitative easing – including the introduction of corporate bond purchasing – and reducing interest rates to new record lows.
Such loose monetary policy has been well-received by the UK market and, combined with the fall in sterling which has boosted global-facing stocks, has led to the FTSE 100 returning 10.44 per cent since the referendum results.
Performance of index since 23 June
Source: FE Analytics
However, a number of fund managers are worried that the triggering of Article 50 next April could have a detrimental effect on both the UK economy and markets.
In an article published last week, Rathbone Global Opportunities manager James Thomson said the medium- to long-term effects of Brexit are widely unknown and has therefore reduced has UK weighting by 10 per cent so far this year.
“I still think this will be a pretty strong headwind for the UK economy, even if it’s in areas where you don’t see it; where investment decisions would have been made but they’ve been further delayed before going somewhere else. It’s almost the absence of growth that may be a problem,” he warned.
Thomas, however, says Brexit won’t necessarily have a negative impact on the economy and points out that many UK companies conduct most of their trade with countries outside the EU.
He also says a hard Brexit can easily be navigated despite fears we will leave the single market.
“With the Brexit die cast, we have uncertainty as to whether it is a hard die or a soft die. The four freedoms of the European Union– free movement of capital, people, goods and services – worked well in three categories, but not for services,” the manager said.
“It is not really a single market – there are different languages, so printed packaging materials and instruction manuals have to be in all of them. Plug sockets vary widely and laws are different in each country.
“Whether it is a hard or soft Brexit, commerce will continue.”
He reasons that member states of the EU are also members of the World Trade Organisation, which means the UK can trade on under preferential trade agreements even if it is a hard Brexit.
According to figure the manager obtained from HMRC, the value of goods imported to the UK from the EU exceeded the value that is exported to the EU by £85bn last year.
“Corporate vested interests will speak loud within the Union as jobs will be at risk if draconian measures are taken,” he said.
“One thing that we believe will not stop is those secular growth trends extant in the world economy that we have commented on in many past reports.”
Another concern UK investors face is whether interest rates continue to fall and turn negative, which has already happened in Germany and Japan.
Thomas says negative interest rates are unlikely to have much of an impact on today’s continual low-growth, low inflation environment and explains that companies simply have to adapt their strategies.
“AutoTrader, which we have held since their initial public offering, stopped printing in 2013 and moved fully online,” he reasoned.
“They have a dominant position in their industry, like Rightmove has in property – another of our holdings.
“But it is not just AutoTrader being a popular interface between car dealers and the car buyers, it is the potential of the company to take a greater percentage of the commission pool or revenues as the industry automates more through the use of big data it accumulates.”
Another example of technological advancement which has led to dominating a market area, according to the manager, is the success of companies such as Uber and Lyft.
According to his research, the number of traditional yellow taxi rides in New York since 2014 has halved due to the use of e-commerce increasing competition in the market space.
Thomas also thinks there is much further to run in the automobile and e-commerce sector of the UK market. For instance, he says Uber and Volvo are set to pioneer an autonomous taxi fleet in Pittsburgh and Ford aims to build its first mass-market driverless car by 2021.
“The technology is advancing fast. NVIDIA, an American semiconductor design company, is working with Volvo and their ‘Drive Me’ autonomous vehicle programme. They have configured a new system on a microchip, using processing cores developed by themselves and UK-based ARM Holdings that can process up to 24 trillion deep learning operations per second,” the manager said.
“As a percentage of gross domestic product, UK global goods exports are heavily concentrated in the research & development (knowledge) heavy and high skill (know how) manufacturing.
“Mechanical machinery, cars, medicines and pharmaceuticals, electrical machinery, aircraft, miscellaneous and scientific machinery account for 50 per cent of the total.”
While many investors typically turn to the US for technology exposure, Thomas says the UK service economy is becoming increasingly complex and interconnected.
For instance, he points out that London has its own ‘Silicon Roundabout’ in Old Street, which he says is a “boom area” for information technology given its readily available workforce and high level of creativity.
“We have often reiterated our overriding investment mantra in these reports that ‘things will not necessarily become better or worse, but will become different’,” Thomas concluded.
“In terms of goods traded, as James Dyson espoused through the referendum debate (if you can call it that) – his eponymous company exports 81 per cent to the rest of the world which is far more than the 19 per cent exported to Europe – “We’re number one in Germany and France – but it’s small and the real growing and exciting markets are outside Europe.””
Over Thomas’s 14-year tenure as manager of AXA Framlington Select UK Opportunities, the fund has returned 335.68 per cent, compared to its sector average and benchmark’s respective returns of 200.41 and 208.86 per cent.
Performance of fund vs sector and benchmark under Thomas
Source: FE Analytics
The £3.7bn fund has a clean ongoing charges figure of 0.93 per cent and yields 2.15 per cent.