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Election impact shortlived, say fund managers

While certain UK equities could benefit from a post-election bounce, global influences remain the key driver.
May 13, 2015

Following last week's general election in the UK, a number of fund managers and analysts have given their reaction. We round up some of their views.

Effects on the market

Colin Morton, vice-president and portfolio manager on the Franklin UK Equity Team, says:

"The obvious big winners are likely to be those sectors that have the potential to be affected by a change in the political hue of the government. That includes utilities, tobacco and the banking sector.

"But many large-cap stocks aren't really affected by the political affiliation of the government, including oil companies, pharmaceuticals and mining companies. You could even make a short-term argument that the likely strength of the pound in response to the election result might affect the overseas earnings of some larger stocks harder than if there had been a more uncertain outcome.

"We expect to see a greater impact among mid-cap stocks because they tend to be more focused on the domestic market. Housebuilders and real estate agents may stand out now that the cloud of a so-called mansion tax on higher-value properties proposed by the Labour party appears to have blown over. And we think there may be more interest in support services, especially companies that provide outsourced services to governments."

 

Doubts

But Mr Morton goes on: "It's debatable whether some of the post-election increases in share prices that we have seen are justified. One might expect to see some of that euphoria drift away over the coming weeks."

Tim Rees, senior portfolio manager at Insight Investment, believes the key driver for UK stocks remains the impact of global factors. "The flagging Chinese economy, the prospect of interest rate rises in the US and the debate over the efficacy of quantitative easing in Europe has caused a great deal of uncertainty in the year to date," he says.

Other concerns for UK equity fund managers include global economic growth and energy and commodity prices.

 

Positioning

Caspar Rock, chief investment officer at Architas, prefers European and Japanese equities over UK equities given the economic recovery and monetary stimulus in those two markets.

And Nigel Green, chief executive at independent financial adviser de Vere Group, says: "The prospect of an in-out referendum on the UK's EU membership could lead to numerous years of ongoing uncertainty - something the markets are allergic to - and, in response, investors need to take precautions against a fall in the value of UK assets. They can do this by increasing their exposure to overseas investments."

But wealth manager Whitechurch Securities says the election result has highlighted the futility of positioning a portfolio based on short-term politically driven speculation, and favours positioning portfolios for the medium to long term, with asset allocation driven by valuations and risk managed via diversification across asset classes and geographically.

Whitechurch's stock market exposure will continue to have a material weighting to the UK but this will be complemented by overseas exposure. Its UK exposure will focus on dividend-producing shares as their yields remain attractive versus other asset classes.

Whitechurch's core exposure will remain focused on defensive blue-chip income stocks, complemented by stockpicking funds that invest in medium and smaller companies that stand to benefit from a more stable domestic economic backdrop.