As we mark the one year anniversary of the triggering of Article 50, confirming the UK’s withdrawal from the EU. Below we look back at some of the key market trends that have emerged since the EU referendum. Contributor Laith Khalaf, Senior Analyst, Hargreaves Lansdown.

Investors have actually enjoyed some pretty healthy returns from the stock market since the EU referendum, despite the political upheaval it has caused. The major factor affecting UK investors has been a falling pound, which has boosted the performance of overseas investments in particular. It has also helped the UK stock market too, seeing as Footsie companies earn a large chunk of their revenues from international operations.

One of the starkest shifts since the EU referendum has been in the buying patterns of UK fund investors. While retail investors have been pouring record amounts into investment funds as a whole, they have been boycotting the UK, and choosing instead to park their money in global equities and bonds.

Outflows from UK funds were most pronounced following the referendum, and around the time of the general election last year, but negative sentiment towards the UK still prevails today. This is despite the UK fund sector being home to many top class fund managers, and the UK stock market offering lots of international exposure, and a healthy dividend yield.

The tales of woe from the UK high street have done nothing to bolster confidence in the UK. A weaker pound has increased the cost of stocking shelves with imported goods, while simultaneously putting a dent in consumer purses though rising inflation. This has come against a backdrop of growing labour costs in the retail sector as a result of the national living wage and pensions auto-enrolment, not to mention a new retail paradigm whereby consumers are increasingly doing their shopping online. All of this adds up to a perfect storm for the UK high street, and had precipitated the demise of some well-known names.

However on the whole, the UK economy has continued to chug along since the Brexit vote, and the fact interest rates are on the rise tells us the Bank of England thinks the UK is in robust enough shape to handle tighter monetary policy. Investors can’t control the Brexit negotiations, currency fluctuations, or the day to day movements of the stock market. They can however take simple steps to build their wealth and mitigate risks. Investing regularly smooths the ups and downs of the stock market, while maintaining a diversified portfolio helps lessen the impact of any downturn in a particular market or sector. Meanwhile making sure investments are held as tax-efficiently as possible means more returns for your nest egg, rather than the taxman.’

 UK fund withdrawals
Since June 2016, £6.7 billion has been withdrawn from UK equity funds by retail investors, according to Investment Association data. This compares with £8.2 billion flowing into global funds and £19.3 billion flowing into fixed income funds over the same period. The chart below shows that large net outflows from the UK retail sector followed the EU referendum, and also spiked around the time of the 2017 general election.

Source: Investment Association

Stock market performance
The table below shows the UK stock market has returned 17.1 percent since the Brexit vote, despite some pretty sharp falls in the days and weeks following the referendum, and a rocky start to 2018. Returns have been much higher for other developed markets over this period for sterling investors, thanks in large part to the falling pound. If we look at performance in local currency terms, the picture is moderated, and the UK stock market has actually performed slightly better than the European stock market over this period, though the latter has been held back by a strong currency denting international profits in euro terms.

Within the UK stock market it’s the small cap sector which has performed best, despite the conventional wisdom that this part of the market is more plugged into the domestic economy and therefore more vulnerable to Brexit concerns. Often the performance of smaller companies can be dictated more by their own progress as a business than by that of the wider economy, which makes this a part of the market well-suited to skilful active fund managers.

 Retail woes
The UK retail sector has indirectly been a casualty of Brexit, thanks to a weaker pound pushing up the cost of importing goods, and simultaneously putting pressure on consumer purses. As a result general retailers have shed around £10.5 billion in terms of their market capitalisation since the Brexit vote.

Some of the headwinds faced by the UK retailers are abating, most notably the pound has recovered against the dollar, and consumer price inflation looks to be moderating. However labour costs will still be creeping up as the National Living Wage is set to rise in April, as are auto-enrolment pension contributions. Meanwhile the ongoing shift to online and mobile shopping is going to put pressure on retailers who aren’t part of the digital revolution.