What to buy if Scotland votes Yes

Which listed companies would be most hit by a Yes vote in Scotland on Thursday? We looked at some in our cover story last week (now free to read), but since then, various brokers have added their views to the mix.

Citi reckons you might want to avoid Aberdeen Asset Management on the basis that it could lose clients domiciled outside Scotland as well as being hit by sharp rises in regulatory costs.

However, the broker considers Babcock to be the highest risk firm in the market: 15% of its revenues come from its Rosyth and Clyde shipyards.

Then there are the oil companies: Jim Sillar’s threats to push for nationalisation post a Yes vote isn’t the kind of thing that makes shareholders feel secure in a future stream of dividends from the North Sea. There will, he said, “be a day of reckoning with BP and the banks.”

But it might not be just companies clearly operating in Scotland that are hit by all the nonsense in the north. The fact is, says John Redwood in the FT, the UK is “entering a very political period”.

Investors are also likely to be beginning to take into account the high chance of a Labour government winning the next election. That means “high property taxes; a price freeze for utilities; intervention in banking; and a general wish to tighten up on large companies and their behaviour.”

These are all things that “will be seen as a headwind against profits and dividends”. Add the referendum to that and you begin to see why there has been such huge capital flight from the UK in recent weeks (£27bn in August alone and the numbers must have picked up in September): it just doesn’t feel like a safe haven anymore. Redwood would cut back on all UK holdings.

On the plus side, there might be a few opportunities waiting in the wings for investment trust fans looking to pick up some assets for less than their net value.

If you are really expecting a Yes vote (and, insane as you might think it, it really does seem to be 50:50 at the moment), you might make a list of the Scottish-based trusts you’d really like to own and keep it for Friday.

If there is a Yes vote, it seems likely that anything remotely connected with Scotland will see a drop in price. But given that the trusts are mostly invested in global assets of one kind or another; are listed in London; and can easily shift their domicile south (at a cost of course), any correction is likely to be temporary, or as the financial industry likes to put it, ‘a buying opportunity’.

Personal Assets and Scottish Mortgage – both of which are in our investment trust portfolio are based in Edinburgh.

If you already hold trusts and are happy with them (as we are with ours), however, don’t sell them in hope you can buy them back for less later: long-term investors don’t trade on noise. 



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