Money Matters

It’s been the key phrase of the last week of the campaign. But while the possibility of ‘a hung parliament’ has only ever had a very remote chance of happening, now it is moving slowly closer towards reality.  Whilst hung parliaments are very rare, the opinion polls are suggesting that this is the closest run election in a generation. 

And everyone has an opinion about it. From the Sun’s blunt headline on the prospect of a coalition government, “Well Hung…and Shafted” to the FT’s own thoughts on why the third placed party, which most polls suggest is currently Labour could still dominate the Commons.

Private investors themselves are becoming increasingly concerned about the potential impact on their investments of a hung parliament after the election. Markets do not like uncertainty and can become more volatile ahead of any general election.

Adrian Lowcock, senior investment adviser at Bestinvest reveals five tips for investors to help them to prepare for a Hung Parliament. He says that in the event of a hung parliament it is likely that there will be a lack of decisiveness as evidence to tackle the national debt. This is because evidence suggests that coalition governments are not able to agree on how to proceed on major issues. This uncertainty will most likely affect sterling and could result in a downgrade of our credit rating.

So what can you do ahead of the election to prepare if you are convinced that we are going to have a hung parliament:

Sell gilts and corporate bonds
A downgrade of the UK credit rating will force gilt prices down, which raises the income yield, reflecting the increased risk of the UK Government defaulting on its debt. This will have a knock-on effect for corporate bonds. To avoid this we suggest investors look at strategic bond funds where the manager will be able to move to areas in the sector less sensitive to the UK credit rating. Recommendation: Legal-general-dynamic-bond.

Sell UK small companies and Buy UK FTSE 100
UK smaller companies are more geared towards domestic growth and earnings, and therefore will not benefit as much from a devaluation of the currency. They have less resources and are not as able to weather the storm as large companies. The FTSE 100 is full of global companies which earn significant proportion of their revenues from overseas it is these companies that will benefit from a fall in sterling. Recommendation: Artemis Income.

Buy global equities
This is will help reduce your exposure to the UK, providing diversification to a portfolio and minimising the impact a hung parliament will bring. Look to invest across all the major economic regions to provide a broad exposure to your portfolio. Recommendation: Threadneedle Global Select C1.

Buy gold
Gold is seen as defensive investment and a safe haven, which investors move to when they have concerns about the market outlook. As gold is priced in US dollars, investors will benefit from currency falls in the UK. Recommendation: Blackrock Gold & General.

Buy absolute return
Absolute return funds will provide investors the opportunity to benefit from falls in the UK market because the managers are able to sell shares they do not own. These funds tend to provide long term consistent returns but will underperform a strongly rising market. As greater uncertainty creeps in, these funds will provide a stable base for your portfolio. Recommendation: Standard Life Global Absolute Return.