Election impact on investment strategy

[richfool]

Yes, I'd be the first to agree that markets will have reacted upon opening at 08.00am on friday the 13th.

My thinking was to have a possible plan in mind, in case an unexpected worst case (JC PM) scenario should arise (though I don't expect it to). In such a situation, the market might well fall 5% or even 8% on opening, but could well go onto fall further e.g. another 20% over the ensuing days as the implications slowly dawn on (or are brought to the attention of) the wider population. In that unexpected scenario, I might well take a hit by selling a UK based IT.

A more likely scenario would be that approaching the election, the polls might start to indicate a particular outcome, which might prompt me to take a precautionary and anticipatory step.

An example of a step which could be taken (even) after a worst case scenario result became clear, would be to Bed & ISA my remaining unprotected holdings.

The above said, I was really looking for what sectors might be hit worst, so that I can consider my positioning and have a plan in readiness. I don't hold any utilities, other than through EGL. I do hold some infrastructure and renewable energy trusts. On the other hand, (if Boris gets his majority) I do hold UK G&I trusts, UK mid & small caps, and infrastructure & renewable energy trusts, which I anticipate would gain upward momentum.

[thebarns]

Agreed that YouGov’s poll will be interesting, I think it comes out 10pm on Wednesday.

If the recent manifesto pledges and ensuing publicity has fully bedded in to voters’ thinking at the time that poll data was gathered then it may well be a useful indicator of the way matters are heading, subject to large scale events in the next two weeks.

I note the point on UK centric ITs and shares and how a number of these have been doing well in recent weeks while some of the overseas shares and ITs/Oeics less so, as the pound strengthened - I believe all of these movements are as a result of anticipating a likely Conservative majority. If there is a whiff of the polls turning, then I believe these positions will rapidly reverse - I suppose my take would be that I see a limited upside in these positions should a Conservative majority come to fruition, however I do see significant downside should some form of Labour minority become a likelihood. Although at that time the overseas shares and ITs etc should benefit from a fall in the £.

So I think the FTSE 250 would fall quite appreciably should a strong Labour minority happen, the FTSE100 less so because of the overseas earners that would benefit from a significant fall in the pound.

I appreciate most people are already sick and tired of the rubbish that is spouted out by politicians, interviewers, the press and audiences - the standard is truly appalling.

If I could recommend one series of short programmes to one and all that so cuts through all of the nonsense, it would be to watch the Andrew Neil interviews with the various leaders.

He is a quite brilliant interviewer, unlike all the rest, who is extremely well prepared in terms of facts and quotations, listens and then challenges the answers to his questions and will not let go until he gets an answer to the question or the interviewee is made to look ridiculous by their position. He does it equally to politicians of all creed and I am only sorry there appears to be no obvious successor to him, the other political interviewers are a sorry bunch incapable of understanding or implementing their craft properly.

He tore through Nicola Sturgeon last night, who often is presented as one of the more capable politicians though this is because she is rarely properly grilled on both her domestic policies and results and quite incomprehensible financial and economic position on Scottish independence - Andrew Neil in 30 minutes reduced her party’s economic and financial position on Scottish independence to gobbledegook.

But it won’t just be Nicola Sturgeon and her policies that he will expose - watch what he will do to Mr Johnson, Mr Corbyn and Ms Swinson.

I think it safe to say that if Prince Andrew had been interviewed by Mr Neil, replies about sweating, Pizza places in Woking, wearing suits on nights out and going, for 4 days, to visit someone convicted for a serious crime, having already cut him off for 4 years to cut off a friendship would not have been accepted without further forensic probing at the interview.

[TheMotorcycleBoy]

Well in my opinion we'll get a short rally after a Tory win, but it will be short lived and fall again once the reality of Brexit comes back. I'm wondering if sterling could fall again, i.e. around early January, like as how UncleEb suggests if they are still Faragists/No-deal sentiments about.

[UncleEbenezer]

like as how UncleEb suggests if they are still Faragists/No-deal sentiments about.

That's not what I meant. Farage's recent "no deal" is all about putting pressure on the Tories. After all, before the referendum, the only one seriously suggesting we might leave the single market and customs union was Gove, and he's now sounding like a moderate!

The point about seeing them off was just about the prospect that whatever mangy dog remains in the Tories after ditching Thatcher's greatest legacy (the single market), and after the Stalinist purge of its moderate members, might no longer be wagged quite so much by its fear of that plague-ridden tail.

[TheMotorcycleBoy]

like as how UncleEb suggests if they are still Faragists/No-deal sentiments about.

That's not what I meant. Farage's recent "no deal" is all about putting pressure on the Tories. After all, before the referendum, the only one seriously suggesting we might leave the single market and customs union was Gove, and he's now sounding like a moderate!

The point about seeing them off was just about the prospect that whatever mangy dog remains in the Tories after ditching Thatcher's greatest legacy (the single market), and after the Stalinist purge of its moderate members, might no longer be wagged quite so much by its fear of that plague-ridden tail.

Ok, so not wishing to get too embroiled in who's the mangy dog here (i.e. it's a Polite discussions topic I think), my main point is that I'm wondering if post GE, if BJ wins it, then us having to face up to Brexit again (I'm thinking that Election fever has had many taking their eyes off Brexit for a bit), may well have a depressing effect on markets and SPs.

Matt

[hiriskpaul]

We are positioned as well as I think we can be, so am not doing anything but watching for now. Only 10% of our equities portfolio is invested in UK listed shares, high by global weight, by not uncomfortably so. We do have 3 UK small cap ITs, 2 in ISAs, that I am considering reducing if the Tories get a majority. The reason being that I don't think the magnitude of the problems that Boris's Brexit strategy will cause UK business has yet been factored in, and small/medium caps will suffer the most, so just after the election might be a good a time as any to take some risk off the table. Likewise with some VCTs. I would likely move into EM small caps instead as they are a little beaten up at present.

We do hold quite a lot of GBP denominated fixed interest instruments with a range of durations, including undated. I think I am now comfortable with the currency exposure, but ideally I would like to reduce duration by selling undated preference shares. However, I would rather not crystallise more capital gains this year if at all possible. My wife holds a long dated Tesco bond which I have been considering selling for a while and is not subject to CGT. That might go soon. All the other dated bonds/prefs are fairly short, the longest maturing in 6 years and I am happy to continue to hold.

I have been looking into offshore investments and trusts, but all seem useless for tax saving purposes unless one is prepared to leave the country.

[TheMotorcycleBoy]

We are positioned as well as I think we can be, so am not doing anything but watching for now

Just watch and wait, eh? I think this is what I should be doing at least until the GE is done. My problem is that I find it quite an effort to sit around with money to invest and procrastinate. (First world problems I guess). Patience is a virtue indeed.

This is particularly difficult for us since we are trying to build our folis, and after the end of year's bonuses and rewards we have easily enough to consume all our (Me and Mel's) remaining ISA allowances. We have about half of our allowances left to use. Basically we need to get it all in the ISAs doing something productive by the end of next March. I hate leaving investable cash in my current account, so keep it in my 1.45% Marcus account. All the same I'd rather it be in something more productive, but since basically all my "watchlist stocks" are currently well over my buy prices, I feel almost tempted to move the money into the ISA into some income generators (e.g. LLOY, LGEN or ULVR ord. shares) whilst I wait.

Matt

[tjh290633]

Just watch and wait, eh? I think this is what I should be doing at least until the GE is done. My problem is that I find it quite an effort to sit around with money to invest and procrastinate. (First world problems I guess). Patience is a virtue indeed.

I abide by the maxim that the time to buy is now. Nobody knows what the outcome will be, or what the market reaction to that outcome will be.

My objective is income, and if I see a chance to increase my income when I have the money in my sticky hand, then I buy.

TJH

[TheMotorcycleBoy]

Just watch and wait, eh? I think this is what I should be doing at least until the GE is done. My problem is that I find it quite an effort to sit around with money to invest and procrastinate. (First world problems I guess). Patience is a virtue indeed.

I abide by the maxim that the time to buy is now. Nobody knows what the outcome will be, or what the market reaction to that outcome will be.

My objective is income, and if I see a chance to increase my income when I have the money in my sticky hand, then I buy.

TJH

Wise words. I did actually end up buying today. I opened a position on Compass group. I'd run the numbers on them a month or so back, and they have fairly decent returns on capital, but were down today, despite some results reflecting sales and cash flow growth.

Also mildly curious re. WPP. I dont know what their numbers are like, except that they are heavily geared up I think. But their chart has SP recovery written all over it I think.

Matt

[PrefInvestor]

Hi Matt, Well FWIW I think that if the conservatives win we could see a bounce of perhaps 2-3% (just a guess) in the FTSE 100 & 250 but the Pound will start rising too (towards 1.35 ?) which will hold some stocks back. If the Conservatives dont win an outright majority, or if horror of horrors Labour get a majority, then the enormity of their tax and spending plans and plans affecting businesses will see the FTSE tank (5-10% maybe ? just a guess) and the GBP plummet back towards 1.20.

IMV hedging is required to hold some things in the UK but significant overseas holdings also are required (to benefit from any fall in the GBP).

Could be TOTALLY wrong, but thats what I think.

ATB

Pref

[TheMotorcycleBoy]

Hi Matt, Well FWIW I think that if the conservatives win we could see a bounce of perhaps 2-3% (just a guess) in the FTSE 100 & 250 but the Pound will start rising too (towards 1.35 ?) which will hold some stocks back. If the Conservatives dont win an outright majority, or if horror of horrors Labour get a majority, then the enormity of their tax and spending plans and plans affecting businesses will see the FTSE tank (5-10% maybe ? just a guess) and the GBP plummet back towards 1.20.

IMV hedging is required to hold some things in the UK but significant overseas holdings also are required (to benefit from any fall in the GBP).

Could be TOTALLY wrong, but thats what I think.

ATB

Pref

Hi Pref,

I share your views. I've been looking for my build-my-foli monthly investments, and Diageo DGE is one of those on my limit list. But I'm a little reserved about folk like them.........since I think they could easily become even cheaper (they've been slowly dropping off I think in the past month) after a Tory win.

I do think the predicted strong pound euphoria will be very short-lived, once people realise that although Corbyn has (possibly) been defeated, we still have the Brexit debacle to put to bed.....and the uncertainty hated by the markets will return. Perhaps I should refrain from buying any more equities till after Christmas. Then I think we may well have quite different futures being priced in?

Matt

[Julian]

I was about to start a more specific thread re dividend taxation but adding on to this one seems appropriate.

I'm not doing anything until/unless it happens but if Labour were to get into power I believe there is a plan to align dividend and capital gains tax rates with income tax rates(*). Since I started my investment journey as an HYP investor and still have a fair amount of dividend income from that HYP and income ITs I would be badly hit by my lower/higher tax rates going from 7.5%/32.5% to 20%/40% respectively.

The plans for CGT re-alignment would seem to rule out a major shift to low-yield growth-oriented stocks since I live entirely off my investments and so need to release a certain amount of capital from my investments each year regardless of whether it comes from dividends or capital sell-offs.

My ISAs always get the full allowable subscription each year so I have no room for manoeuvre there.

I have some VCTs from the days when many focused on MBOs. With recent changes to VCT regulations I would not want to put any more money into those since I consider them way too risky now.

Frankly, short of emigrating, I can't think of a way out. If anyone has given this specific issue (how to respond to a big increase in divi/CGT tax rates) I would be interested to hear where their thinking has taken them.

I'm not sitting brooding about it or tossing and turning at night, the chances are high this will not turn out to be an issue I actually need to deal with, but I am at least trying to find a few ideas that I could let rattle round my head for a while just in case action does become necessary but so far I have come up with nothing. I have calculated what the effect on my tax liability might be though, making reasonable assumptions, and it is not pleasant.

- Julian

(*) Seemingly totally ignoring the fact that dividends have already been subject to corporation tax and that CGT calculations no longer give any exclusion for gains attributable to inflation (i.e. no more indexation). I do wonder whether such simplistic divi/CGT tax proposals would survive closer scrutiny without at least some adjustments.

[SalvorHardin]

Frankly, short of emigrating, I can't think of a way out. If anyone has given this specific issue (how to respond to a big increase in divi/CGT tax rates) I would be interested to hear where their thinking has taken them.

I'm not sitting brooding about it or tossing and turning at night, the chances are high this will not turn out to be an issue I actually need to deal with, but I am at least trying to find a few ideas that I could let rattle round my head for a while just in case action does become necessary but so far I have come up with nothing. I have calculated what the effect on my tax liability might be though, making reasonable assumptions, and it is not pleasant.

I've done several things. The first is betting on a Labour majority; currently I've got £1,600 on this at a weighted average of 24-1. If I am unlucky enough to win these bets then the winnings will cover my estimated additional tax bill for several years. Losing £1,600 is a small price to pay.

I'm banking on a Corbyn minority government being restrained by its partners and the EU referendum that would be demanded as part of the price for propping it up will restrain it further (many of Labour's anti-property rights policies will be hard to implement if Britain remains in the EU).

Capital gains. I've realised more capital gains than I would normally do in the current tax year, banking on the CGT rates not being changed until 2020/21. Some of the proceeds are now in foreign currencies.

Regarding future capital gains, I'll cut back on realising gains. I'm very happy to hold onto all of my non-ISA shareholdings for a decade or two, with the exception of a small holding in National Grid (they're mostly wide moat low-yielding companies and investment trusts with a big bias towards non-UK investments). Most of them are foreign companies or British Headquartered multinationals who do most of their business outside the UK. The exception is Central London property, which is my big bet on the UK and a fairly decent Brexit resolution (however that turns out).

If ISAs are abolished (I wouldn't be surprised by this), I'll cross that bridge when I come to it.

Thankfully there's enough spare capacity in my income that I can absorb a big hit due to additional taxes with little change to my lifestyle. But emigration, probably to Quebec, is an serious option.

[BBLSP1]

Julian,

Very much in the same boat as yourself. I too have no solutions and am sitting tight. I also suspect that the Tories would not be averse to moving in this direction with dividend taxation and CGT, more slowly perhaps, and without the nationalisations and 10% 'worker's shares'. After all, it was the Tories who introduced the 7.5% etc taxation and fairly quickly dropped the 5k nil rate band to 2k.

I've been an expat for over 20 years and currently am in a country which I could not / would not want to live in permanently. Always said I would retire to the UK rather than say the various SE Asian countries popular with my contemporaries. I am about ready now, so this election is critical to my future plans - retire or, in the event of Labour, slog on for many more years. ....or, that Philippines beach bar town beckons....

[thebarns]

Interesting......2 days to go, a bit of poll tightening going on.

For most of middle class UK, who have accumulated some or reasonable wealth, it is very difficult to emigrate for work, age or family reasons.

There is no (using this loosely) chance of a Labour majority.

There currently is around a 25-30% chance of a Labour minority, certainly enough that it can’t be discounted entirely.

But what a chaotic Minority government that would be - quite potentially Labour having to be propped up by Scottish Nats, Lib Dems, DUP, Plaid, two of whom would not allow Corbyn to be Prime Minister. Even if Corbyn was sacrificial ditched, the governing and legislative process in this arrangement would be tortuous. It would not be long before it collapsed and another election ensued, held together in the hope it lasts long enough to get an EU referendum vote through.

The legislative process for nationalisation, the proposed 10% dilution to give employees shares, complicated tax changes, operational issues, legal challenges etc would surely grind to a halt.

I haven’t seen the exact odds for a perhaps more problematic minority which did not need the support of Lib Dems and DUP numbers, but I am guessing it is small single figures.

So my take is a small Tory majority is probable and no need to do anything dramatic with investment decisions on that basis.

A small Labour Minority is indeed possible, but I have real doubts they would really be able to do very much in terms of nationalisation etc - Lib Dems and DUP against this.

I think they could progress with their more radical nationalisation plans etc if just basically had to rely on the SNP, plus Plaid etc, but I reckon the probability of this is around 1-2% - on that basis, I would not do anything.

The detailed 100,000 MRP sample YouGov poll is out at 10pm this evening.

Two weeks ago it forecast a 68 Tory majority (plus the 7 Sinn Fein that never vote).

It would not surprise me if this has halved at least, but it needs to fall quite a long way before we get into the situation of a workable Minority capable of implementing drastic legislation via only Labour and SNP numbers.

[scrumpyjack]

In the event Labour did get in (maybe in 5 yrs time), it is quite possible they would introduce CGT based on notional disposal at market value. ie every few years you are assumed to have disposed of your assets at market value and CGT is then payable. There are, I think, some countries that do this.

Otherwise they would have the problem of a large fall in CGT revenue even though they had increased the CGT rate substantially as many investors would simply hang on to their assets and not sell them.

[jonesa1]

There currently is around a 25-30% chance of a Labour minority, certainly enough that it can’t be discounted entirely.

But what a chaotic Minority government that would be - quite potentially Labour having to be propped up by Scottish Nats, Lib Dems, DUP, Plaid, two of whom would not allow Corbyn to be Prime Minister. Even if Corbyn was sacrificial ditched, the governing and legislative process in this arrangement would be tortuous. It would not be long before it collapsed and another election ensued, held together in the hope it lasts long enough to get an EU referendum vote through.

I'd expect the first act of a minority Labour government would be to do "something" about Brexit and a second referendum. Their second act, which would be supported by many of the minor parties, would be to extend the franchise to foreign nationals and 16 year olds (assuming they'd be more likely to vote non-Tory). Then when the inevitable (or is it, under the fixed term parliament act?) early election is held a few promises about open borders and benefits to foreigners, coupled with a large increase in the number of left-leaning British voters, Labour (and Liberals, Scots Nats, Plaid, Greens) would expect to increase it's vote significantly.
In their turn, a priority for a Tory government would surely be to enact the boundary changes which would probably be unhelpful to Labour (and reduce the current over-representation of the Scots Nats).

[dspp]

Moderator Message:
Following some alerts by ordinarily reputable sources I have deleted a few more recent posts. Please stick to the subject, i.e. impact on investment strategy. Not the rights or wrongs of the politics. Or this goes into PD.

thanks, dspp

[richfool]

Well this morning everything seems to be going up. Renewables up, banks up big time, - Lloyds c 10%. REIT's up. Mercantile (mid caps IT) up 8.88%

Nowhere to deploy my dry powder!

[colin]

Well this morning everything seems to be going up. Renewables up, banks up big time, - Lloyds c 10%. REIT's up. Mercantile (mid caps IT) up 8.88%

Nowhere to deploy my dry powder!

Foreign currency, Norwegian govmt bonds?