With the Brexit saga continuing with prime minister Theresa May narrowly clinging onto power after winning a ‘no confidence’ vote, investors may think that UK equities are to be avoided all costs. However, a report from Morningstar suggests there are ways to play even the most challenging markets.

The firm says that those worst hit by a ‘no deal’ Brexit outcome would be smaller UK-centric stocks that compose much of the FTSE 250. These are likely to feel the brunt of the downturn.

Among the larger stocks, banks, autos, supermarkets, and aerospace stocks are most vulnerable. Consumer stocks with a strong competitive advantage are most immune to a worst-case scenario Brexit – stocks such as Unilever, Nestle and Danone.

Its report also stated that there’s been no ‘mass exodus’ from UK equity funds. Morningstar said from 1 June 2016 to the end of October 2018, U.K. equities experienced EUR 16.7 billion in net outflows. “That sounds like a lot of money, but it isn’t,” the report states.

In fact using their data, UK equity funds had EUR 528 billion at the beginning of the June 2016. Overall, U.K. investors have contributed a net EUR 177.5 billion into long-term funds over this period.

Also given the fact that around 70% of the FTSE 100 derive their revenue from overseas, a fall in Sterling, which has been a hallmark of Brexit, will benefit these multinational companies.

Dan Kemp, chief investment officer for Morningstar Investment Management EMEA, said: “Brexit is difficult to analyse because of the indirect and tenuous connections it has on investment fundamentals.

“We believe that when investors depart from long-term, fundamentally sound investment analysis, they can drift dangerously into speculation. The first thing to acknowledge about the fundamentals is that the U.K. economy is not the U.K. equity market. We do not need to predict the U.K. economy to know what might happen to U.K. stocks. The U.K. is unloved, reasonably cheap, and fundamentally healthy.”