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BLOG: The great election quandary

Kit Klarenberg
Written By:
Kit Klarenberg
Posted:
Updated:
07/05/2015

There is one sure-fire thing to get the UK financial markets in a volatile mood – uncertainty around the general election. With the 2015 election billed as one of the least-certain in British history, financial markets are braced for an interesting ride and the UK’s investors are keeping a close eye on the events and their portfolios.

Over the years certain share prices and market confidence have been hit by general elections, which may have led some investors in recent weeks to wonder should they hold their nerve and stick with being in the market for the long term, or whether they should cash in while prices are buoyant.

Moreover, the value of Sterling has come under pressure in the lead up to the election and last week it was revealed that some private investors have been voting with their feet, pulling £1billion from equity funds in March.

Looking back on the stock market performance over the years, UK shares do not react well when an election is difficult to call – a scenario that we are grappling with at this very moment.

  • In the year leading up to both the 1970 and 1992 elections, when the Conservatives won small majorities under the respective leaderships of Edward Heath and John Major, the FTSE All Share index posted losses of 11 per cent and 5 per cent respectively.
  • The biggest pre-election fall took place in November 1974 when the Labour Party, under Harold Wilson, won one of the smallest majorities in history (Wilson achieved a majority of just three seats). This was the second election that Wilson won that year. The first resulted in a hung parliament, causing investors to fret over the outcome and resulting in the FTSE All Share index falling by 21 per cent.

However, the best advice when it comes to investing is; rather than trying to second guess the moves of politicians or the government of the day, stick to the fundamentals – look at individual companies’ key results and business strategies. In reality, these are far more likely to drive share prices and returns in the months and years ahead – more so than party manifestos.

It is natural for investors to feel concerned and /or unsettled at times like this – indeed, the above history shows this has always been the case – though many feel that uncertainty has been exacerbated since the last election.

In response to calls from investors, and with changes such as the Retail Distribution Review and the recent pension freedoms, at TD Direct Investing we are developing a selection of impartial solutions to help customers make better investment decisions. One of these solutions I’ve been overseeing is a list of recommended funds.  We are working with MorningStar to select a range of talented fund managers, who are focused on investing in quality and growth-focused companies.