Which UK shares should you buy before Brexit?

The UK officially left the EU at the beginning of 2020. However, the real test will come at the end of this year when the transition period formally comes to an end.

This is a difficult time to be an investor in UK shares. Even if a trade deal is in place before the deadline, many companies will still face increased bureaucracy and costs after the transition period ends. 

As such, finding attractive investments in this environment is challenging. Some companies might prosper after Brexit, but others could struggle. At this point, it’s difficult to tell which businesses will fall into which bucket. 

UK shares to buy

Despite the uncertainty, I think there are a handful of companies that may produce attractive returns for investors after Brexit. 

These include utility providers such as United Utilities and infrastructure operator National Grid. Both of these companies should continue to see steady demand for their products and services after Brexit. Even a hard Brexit is unlikely to impact the demand for electricity and clean water. 

The same is true of retailer Tesco. Customers are unlikely to stop buying food because of Brexit. That said, the supermarket giant will almost certainly have to deal with higher costs and more regulation after the transition period ends.

However, as one of the largest retailers in Europe, the group has the size and scale required to deal with these challenges. It can pass some of the costs onto customers, and its global distribution network should help the company overcome any additional logistical challenges. 

Look overseas 

I think defensive, domestic UK shares, like those listed above, will produce the best returns after Brexit.  However, international businesses may also provide decent returns for shareholders. Companies like Unilever and British American Tobacco generate the majority of their sales overseas. A hard Brexit shouldn’t impact these markets as badly as the UK economy. This should help these businesses weather the storm.

At the same time, many analysts think a hard Brexit would cause the value of the pound to fall dramatically. A weak pound is good for exporters as it makes their goods more attractive to overseas buyers. That’s why, historically, whenever the pound has fallen in value, the value of the FTSE 100 has increased. 

These are the strategies I’m using ahead of Brexit. Rather than trying to pick winners, I’m focusing on buying high-quality defensive UK shares, which to should continue to produce returns for investors no matter what the outcome of the trade talks.

I think these companies offer a win-win situation for investors. In a no-deal situation, organisations like the National Grid should fare relatively well. And if a deal’s agreed, it’ll be business as usual. I think this is the most sensible approach for investors, as it offers the best of both worlds. 

Rupert Hargreaves owns shares in Unilever and British American Tobacco. The Motley Fool UK has recommended Tesco and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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