Opportunity, not anarchy, in the U.K.

“As long-term investors, we think the U.K.’s going to be fine. A lot of the issues associated with the Brexit will likely be temporary, and more near-term,” Peden tells Advisor.ca, defining near-term as two to three years.

Oxford-based Electrocomponents plc is an example of an electronics and maintenance distribution company with large domestic U.K. exposure, and which was discounted by Brexit, he says. Following the Brexit vote, its stock fell to about 245 pence.* It’s now trading around 363 pence. (Peden’s fund continues to hold Electrocomponents, which it held prior to the referendum).

Read: British unemployment falls again despite Brexit vote

Hard Brexit

U.K. prime minister Theresa May has indicated a “hard Brexit,” with an effort to use Article 50 of the Lisbon Treaty to trigger Brexit negotiations with the EU by the end of March. In a speech this week, May called for changes to the way the country has served workers, taking aim at monetary policy.

“While monetary policy with super-low rates and quantitative easing have provided emergency medicine, we have to acknowledge some of the bad side effects. People with assets have got richer, while people without have not,” she said. “A change has got to come, and we are going to deliver it because that’s what a Conservative government can do.”

Read: What to expect as Brexit talks heat up

Peden expects the Brexit process to last up to two years, and warns of volatility along the way.

“Some companies will hold back and constrain investment during that period as they wait for certainty, but in the long term we think it’s in the best interest of Europe and the U.K. to come to an amicable arrangement where both sides will benefit,” he says. “The U.K. is the second-largest economy in Europe and it’s not in anyone’s interest to arrive at some type of punitive exit situation for the U.K.”

EU access

He predicts the U.K. will emerge from the negotiations with sufficient access to European trade in goods and services, noting it’s possible for Britain to establish a new kind of relationship with the EU.

The 2014 referendum in Switzerland, which is part of the EU’s Schengen area, put roadblocks in front of European immigration to the Alpine country, an issue that was also central to the Brexit vote. This week the European country’s lower house voted to give Swiss residents (including EU citizens) priority for jobs in Switzerland. The proposal, if it becomes law, would bar companies from hiring from abroad without advertising and first trying to hire Swiss residents.

While Switzerland and Britain face different situations, there are enough parallels.

“They will need to renegotiate some sort of agreement. There is an opportunity for the Swiss and the British to establish a relationship with some type of controls on the free movement of people, yet still allow a degree of access to the EU market,” Peden says.

Business in London

In his longer-term outlook, Peden is positive on the U.K.’s flexible labour market, economic policies, strong business and shareholder rights, and a tax regime with low corporate taxes.

As for the possibility of firms and CEOs leaving the U.K. en masse, Peden isn’t convinced, though he says lower-cost labour roles like those in the back office could shift to Eastern Europe.

“A lot of the high-skilled jobs, those would be very challenging to replace,” he says. “Those types of people, the high income earners, they have their lives and their families in the U.K. It’s challenging to convince them to move to, say, Paris, where the tax rate is very high on their incomes and obviously, to move their entire families to where the language is not English, it would be a big change of lifestyle and much higher tax burden.”

*An earlier version of this story incorrectly cited the stock price in pounds, not pence.

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