Billed by political analysts as the toughest election to call since Winston Churchill was voted out of office two months after leading Britain to victory in the Second World War, this year’s campaign was supposed to throw up all sorts of investment hurdles.
But rather than the anticipated market shifts, the unpredictability of the outcome appears to be having the opposite effect, prompting investors to hold the line.
“It is very difficult to position your portfolio for an eventuality when then election outcome is so uncertain,” explained Richard Buxton, manager of Old Mutual Global Investors UK Alpha Fund.
“Rather than position the portfolio in advance of the election, I would prefer to react to how the stock prices take the result. As a long-term investor, I would rather ride any short-term volatility and try to take advantage of it.
“Even in the worse-case scenario of people panicking over a stock market-unfriendly government, the market tends to overreact. Rather than position the portfolio in advance of the election, I would rather react to how the stock prices take the result. If things overreact on the downside then you might take some short-term pain, but you will have to position in stocks where it tends to get overdone.”
Chris Mayo, investment director at Wellian Investment Solutions, believes that it is impractical to base an outlook on any macro or economic view, leaving stockpicking as the most viable option.
“Managers cannot really position themselves for any particular outcome as there is so much uncertainty,” he said. “A lot of managers will ignore the noise coming from the fiscal aspect and try to pick to quality companies.”
“We are neutral in the UK – we are not particularly bullish or bearish. Around 60-70% of the FTSE 100 companies have overseas earnings. It is the small and mid-caps that have a UK bias, and even then it does not seem like there will be much negative impact in those areas.”
Conversely, Bill McQuaker, co-head of multi-asset at Henderson Global Investors, disagrees.
He says that the current state of the domestic economy may lead to the UK being tarred with the same brush as the ‘Fragile Five’ – the term applied to Brazil, India, Indonesia, Turkey and South Africa in 2013 in reference to their dependence on external financing.
