Two years since the referendum on EU membership, investors are no clearer on what the future relationship between the UK and the bloc will look like. 
During that time there have been a number of developments on the continent including several elections in key EU states and greater insight into how a UK-less EU will operate.
In the UK there have been several significant political developments also.
A change of prime minister and a government reshuffle in 2016 after the referendum result was followed by a general election in 2017 that diminished the ruling Conservative party’s parliamentary majority.
Today a minority government with support from Democratic Unionist Party has added further challenges for a government already tasked with negotiating one of the biggest pieces of legislation in recent memory. It has also added to greater uncertainty for investors.
Yet, there have been some signs of a shift in sentiment among investors frustrated at the progress of negotiations.
Indeed, recent research by The Share Centre suggest that one in 10 Remain voters would now vote Leave, although confidence in prime minister Theresa May to deliver a good Brexit deal has fallen dramatically over the past two years.
While the UK economy has indeed lagged its global peers, it has continued to grow. The markets tell a similar story, with the FTSE 100 falling behind other global blue-chip peers in recent years but still trending upwards.
Since the referendum result, the FTSE All Share index has delivered a total return of 34.71 per cent compared with a 28.81 per cent gain for the MSCI Europe ex UK, when rebased in local currency.
Performance of indices since the EU referendum
Source: FE Analytics
“Two years may seem like a lifetime in financial markets but, in the broad sweep of history, it is but the blink of an eye,” said Stephen Jones, chief investment officer at Kames Capital.
“Brexit is no different from any other potentially significant market development; investors need to evaluate the risks and opportunities, what is discounted and what portfolio adjustments are necessary to skew outcomes in their favour.”
Jones added: “Currently, Brexit is negatively influencing UK markets. Everyone is aware that change is coming − in what form no one knows. Uncertainty is rarely a positive.”
However, sentiment appears to have turned more recently.
Indeed, some managers have claimed that the UK market is good value and has never been cheaper trading at multiples seldom seen outside of times of world war.
Negative sentiment towards the UK also distracts from some of the strong performance delivered by some fund managers during the past two years.
One trend of note is the outperformance of smaller companies funds compared with large-cap focused strategies, particularly given their exposure to the domestic economy.
Performance of sectors since the EU referendum
Source: FE Analytics
As the above chart shows, the average IA UK Smaller Companies fund has delivered a total return of 56.97 per cent since the referendum, compared with a 35.70 per cent gain for its average IA UK All Companies peer and a 28.80 per cent return for the average IA UK Equity Income fund.
“Small-caps were in fact beaten up in the run-up to the referendum and, at one point, were sitting at a hefty 20 per cent discount relative to the FTSE 100,” said Darius McDermott, managing director of Chelsea Financial Services.
“But when investors realised that the UK economy may not be doomed after all, this discount shrunk – it is around 10 per cent today – as they snapped up the stocks which had unfairly been tossed in the bargain bin.”
He added: “The weaker currency also increased M&A activity, as overseas buyers sought attractively-priced UK smaller companies.”
As such, it is little surprise that the best performing UK equity fund since the referendum vote has been a smaller companies strategy: Old Mutual UK Smaller Companies Focus.
The £434.4m, five FE Crown-rated fund is managed by Nick Williamson and has delivered a 102.94 per cent total return compared with a 40.35 per cent gain for the Numis Smaller Companies Excluding Smaller Companies index.
Performance of fund vs sector & index since the EU referendum
Source: FE Analytics
The best performing IA UK All Companies sector fund, meanwhile, is MI Chelverton UK Equity Growth, which is up by 76.74 per cent.
Another five FE Crown-rated fund, this strategy – managed by James Baker and Edward Booth – invests across the market cap spectrum but has a bias towards small- and mid-caps. It targets companies that have the potential to grow faster than the market and are highly cash-generative to sustain that growth.
Since the referendum, the average IA Europe excluding UK fund has delivered a 38.40 per cent total return, in line with its peers in the IA UK All Companies sector.
During that the time the best performer has been the £406.9m Neptune European Opportunities fund, which has generated a 68.90 per cent total return, compared with a 36.01 per cent gain for the MSCI Europe ex UK index.
The four FE Crown-rated fund is managed by FE Alpha Manager Rob Burnett – Neptune Investment Management’s head of European equities – and invests in a concentrated portfolio of European stocks.
However, it is important to note that while economic growth has remained positive and markets have recovered from the post-referendum sell-off a number of issues remain.
The UK market and economy remain sensitive to any developments in the Brexit negotiations particularly as several key issues remain unresolved, most notably over the Irish border.
“With both British and European officials now suggesting we may not get any Brexit agreement until November or even December this year – just three months before we are due to leave the EU – I think it is fair to say nobody knows what will happen over the next few years,” said Chelsea’s McDermott.
“For now, and for at least over the medium term, the key will be to keep calm and carry on, making sure your portfolio is well-diversified. There is bound to be more stock market volatility, but that will allow brave investors to perhaps pick up some homegrown bargains along the way.”