Recent pre-election uncertainty is all about protection, says Smith & Williamson’s Mark Boucher, but consumer discretionary spending will carry on regardless.
With election night just a fortnight away and still no clear frontrunner, many UK equity investors have adopted a holding pattern on their portfolios until a winner – or two – emerges.
Boucher, manager of Smith & Williamson’s Enterprise fund, is for the most part utilising the same strategy. However, there is one sector that he believes will remain largely unaffected whatever the outcome.
“We are keen on consumer discretionary spending,” he explained.
“There will be a period during which people defer large purchases ahead of the election, some of which we have seen already. But the average person will not be particularly affected by whichever government it turns out to be.”
Boucher currently has a 8.5% net exposure to consumer services, but does still have a 14% short position in the sector, while in consumer goods he has long and short weightings of 6% and 1% respectively.
“Consumer services is our biggest long position, particularly airlines and travel companies,” he expanded. “Consumer goods is also another area we are quite long. People are spending the extra money that they have in their pockets, going out to restaurants etcetera, and we think it will carry on improving.”
“We also like life assurance – people are going to save more as normal pension facilities are withdrawn [following the pensions reforms that came into effect on 7 April].”
Boucher also favours healthcare and telecoms companies, backed up by his net weightings in the sectors of 4.5% and 3% respectively.
“We have long positions in telecoms,” he said. “We hold BT and Vodafone – regulators are becoming less tough on the sector, so we like those stocks, and also healthcare, mainly through our 2% weighting in Shire.”
Going back to his emphasis on asset protection, Boucher outlined his intention to bolster the larger positions in the Enterprise portfolio in anticipation of election volatility.
“It has been strangely calm so far, but we can expect to see some uncertainty in the next couple of weeks,” he said. “It is important ahead of the election to make sure that the fund’s assets are protected, and we are looking to do a few more things over the next days.”
“Our net cash exposure to the market is about 20% of the portfolio. It is usually between 15-25% – we will go into the election with nearer to 15% in order to control risk and reduce correlation. We will move back up [to 20%] once the election is over.”
