Election impact on investment strategy

[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.

Aberforth smaller companies and Henderson smaller companies sold this morning after a significant bounce. Invested in iShares EM small caps (IEMS) instead.

[mc2fool]

Aberforth smaller companies and Henderson smaller companies sold this morning after a significant bounce. Invested in iShares EM small caps (IEMS) instead.

Interesting choice. I've been meaning to look into smaller co's, both UK and otherwise, and all sorts, ITs/OEICs/ETFs.

John Baron named nine UK ones he holds in his IT portfolios in an recent IC, inc. HSL (but not ASL) (free registration needed): https://www.investorschronicle.co.uk/in ... companies/

In my first cursory glance at smaller co ETFs it looks like "smaller" is definitely a relative thing. E.g. the largest company in the MSCI World Small Cap index (tracked by WSML) has a mkt cap of some $10bn, and that in the MSCI EM Small Cap index (IEMS) some $3.5bn. And, of course, these are mkt cap weighted indices, although they do both have lots of constituents, 4,300 / 1,600 respectively.

Anyway, re EM small caps "a little beaten up at present", looks like they've been going sideways for quite a while ... http://mediacharting.digitallook.com/cg ... dicator_3=

[hiriskpaul]

Aberforth smaller companies and Henderson smaller companies sold this morning after a significant bounce. Invested in iShares EM small caps (IEMS) instead.

Interesting choice. I've been meaning to look into smaller co's, both UK and otherwise, and all sorts, ITs/OEICs/ETFs.

John Baron named nine UK ones he holds in his IT portfolios in an recent IC, inc. HSL (but not ASL) (free registration needed): https://www.investorschronicle.co.uk/in ... companies/

In my first cursory glance at smaller co ETFs it looks like "smaller" is definitely a relative thing. E.g. the largest company in the MSCI World Small Cap index (tracked by WSML) has a mkt cap of some $10bn, and that in the MSCI EM Small Cap index (IEMS) some $3.5bn. And, of course, these are mkt cap weighted indices, although they do both have lots of constituents, 4,300 / 1,600 respectively.

Anyway, re EM small caps "a little beaten up at present", looks like they've been going sideways for quite a while ... http://mediacharting.digitallook.com/cg ... dicator_3=

Yes, dollar share price of IEMS about the same as it was 5 years ago but earnings per share are up around 20%. In the same time, the S&P 500 earnings have gone up more, about 90%, but share price has also shot up. (p/e, p/b) for IEMS and IUSA are (12.35, 1.31) and (22.35, 3.48) respectively. So valuations vastly different unless you think justified as US companies can continue to grow earnings at a very high rate.

I did consider iShares MSCI AC Far East ex-Japan Small Cap ETF (ISFE) for a while. It has experienced similar earnings and (lack of) price growth, but is even more lowly valued than IEMS (11.59, 1.15). ISFE includes Hong Kong small caps, but obviously excludes other non-Far East EM countries, principally Brazil and India. iShares makes so much money out of stock lending with ISFE that they beat the MSCI index!

Japanese small caps are also still reasonably priced despite rising fairly significantly over the last 5 years because earnings have kept up, rising about 60% (in dollar terms), but I already hold via iShares ISJP.

[johnhemming]

Nowhere to deploy my dry powder!

I think we will see some further growth in the UK market which has been held back by uncertainty for some time. I remain of the view that we would do best remaining in the UK, but some certainty will help. Boris has enough votes to get a deal through and may get sufficient discretion from parliament to be able to sign off the details of any deal through the cabinet.

Boris's main priority will be to stay in power so I don't expect him to jump off a cliff.

[GoSeigen]

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!

LOL. Brexiter gets a Brexit gov't but has "dry powder"! Furthermore, seems to believe an 8.8% rise is all were going to get from Brexit.

Meanwhile this remainer and Tory critic is leveraged long FTSE, mostly banks, and expecting a big, long bull market.


Ironic!

GS

[richfool]

I think we will see some further growth in the UK market which has been held back by uncertainty for some time. I remain of the view that we would do best remaining in the UK, but some certainty will help. Boris has enough votes to get a deal through and may get sufficient discretion from parliament to be able to sign off the details of any deal through the cabinet.

Boris's main priority will be to stay in power so I don't expect him to jump off a cliff.

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!

LOL. Brexiter gets a Brexit gov't but has "dry powder"! Furthermore, seems to believe an 8.8% rise is all were going to get from Brexit.

Meanwhile this remainer and Tory critic is leveraged long FTSE, mostly banks, and expecting a big, long bull market.


Ironic!

GS

I was already well positioned to take advantage of a Boris majority.

I already held small caps trust SLS (Standard Life Smaller Coys), had topped up to overweight an existing holding of Mercantile (UK mid & small caps) a couple of months back and had generally increased my exposure to UK growth & income during the last 12 months. I am overweight renewables and had maintained utility & infrastructure exposure through EGL and INPP & SEQI. (Plus hold UK property/REIT's: PHP, RGL, SLI, WHR).

The main risk I saw, apart from a Corbin alliance, was a fallback of major FTSE 100 stocks due to a stronger pound depressing the value of their overseas earnings (which I personally don't worry about).

I had also recently completed some Bed & ISA'ing and removed some cash from my share dealing account. It was that latter cash (dry powder) that I was keeping handy in case of any opportunities arising from the GE, (or to buy a bigger suitcase if Corbin got a majority, - or Boris a minority!).

Understandably when markets opened, many stocks were away like the proverbial dog having seen the rabbit (if I am allowed to make references to animals on here). Mercantile was up by some 8%. The renewables shot up by c 4%.

In the end I bought some TMPL (Temple Bar), when it dropped back later in the afternoon. I chose TMPL which I have held in the past, because the manager Alastair Mundy focuses on value stocks and was overweight UK banks (inc Lloyds) and holds Builder's merchants and domestic builders, (which I had previously avoided), as well as having some gold and silver ETF's for a rainy day. It's yield is not exciting at 3.28% but I was looking for its recovery/growth prospects. It was still at a small discount of 2%, whereas many UK G&I trust are at premiums. And it's next dividend in March is the bigger final one.

Disc: In addition to MRC (Mercantile) and SLS (Standard Life smaller coys), I also already hold other UK trusts inc: MUT, TIGT & SHIRES and had increased Asia Pacific exposure and multi-asset trust exposure earlier in the year.

[TheMotorcycleBoy]

Some steer for my post election strategy:

https://www.marketscreener.com/EURO-BRI ... ountview=0

Britain's economy will cast off some of the Brexit uncertainty that has held it back since 2016 after Prime Minister Boris Johnson's election triumph, but the risk remains of another "cliff-edge" showdown with Brussels in a year's time.

With Britain's exit from the European Union on Jan. 31 now a foregone conclusion, the question for investors is whether Johnson will stick to his campaign promise not to delay the end-of-2020 deadline for a new EU trade deal.

That deadline is widely seen as tough to meet, given the scale of issues to be resolved.

In the short term, the biggest election victory for Johnson's Conservative Party since Margaret Thatcher's 1987 triumph removes a major brake on growth: the deadlock in parliament over how, or even whether, to proceed with Brexit.

So whatever went up on Friday 13th will start to come down again reasonably soon.

Matt

[richfool]

Well Mike Barnett thinks it's just the start, but there again what does he know, he's just been sacked from one fund:

Under-pressure fund manager Mark Barnett believes today's sharp share price moves on the Conservatives' resounding election victory are the start of a longer-term re-rating for the stocks he favours.

The short-term gains will turn into ‘compelling long-term opportunity’, according to Barnett.

https://citywire.co.uk/investment-trust ... -news-list

[widowandorphan3]

The trend that got its validation on Thursday night started in late August as £ started recovering, and F100 and F250. For once, the smart money really was smart.

I am selling some Lindsell and Smith/Smithson and buying Premier UK Growth, which has been a total dog (compared to them at least) since 2014. But has done a rather remarkable 29% in the past year, including 12% in 3 months, and 3+% on Friday. I started buying Prem in October but I think has further to go, though it does have cos. with plenty of foreign earnings.

Big holdings in Spirent telecom (doubled in a year), Sirius real estate, GYM group, Boohoo.

Boris is no longer beholden to the nutters or the DUP, his new MPs are presumably loyalists (who know they wouldn't have a job without him), and he is rather more of a remainer than Corbin, so I think no deal is off the table. I was a remainer, but the fact is UK has a big deficit with the EU, and as such a deal is in their interests, though I appreciate they have systemic reasons not to wish Brexit well. It will not be plain sailing or the end of the mess, but I believe and hope this is at least the end of the beginning.

I think for now this is a case of a 'trend is your friend'. The UK will get a re-rating that will last until at least until January IMHO.

Other than obvious stuff like F250 trackers, I would love to hear of ideas of funds, ITs, and indeed individual shares that will benefit from the normalisation of the UK market which we lost in 3.5 years ago. UK is cheap on most measures now.

WaO

[IanTHughes]

Boris is no longer beholden to the nutters or the DUP, his new MPs are presumably loyalists (who know they wouldn't have a job without him), and he is rather more of a remainer than Corbin, so I think no deal is off the table.

Where do you get that from? Boris Johnson was NEVER a remainer, he led the LEAVE campaign!

Corbyn is a life-long euro-sceptic and maybe he would have supported Boris Johnson's LEAVE campaign, accept for the fact that he had by then ascended to the leadership of the Labour Party, whose official position was REMAIN. As a result Corbyn was barely heard from during the Referendum campaign.

So, officially at least, Corbyn was a remainer. Boris Johnson was not!

Ian

[Itsallaguess]

Boris is no longer beholden to the nutters or the DUP, his new MPs are presumably loyalists (who know they wouldn't have a job without him), and he is rather more of a remainer than Corbin, so I think no deal is off the table.

Where do you get that from? Boris Johnson was NEVER a remainer, he led the LEAVE campaign

Can I please suggest that people try to stick to investment-strategy themes whilst discussing the recent election on this investment thread, and try to leave the 'Polite-Discussions' types of debate for one of the many threads on that board?

Cheers,

Itsallaguess

[77ss]

Do you any of you have any plans on changing investments, or addition investments as a result of the election? ...

Am I kidding myself trying to time the market? ...

None whatsoever and yes (IMV).

I made no changes in the run-up (sticking, for example, with the utilities) and shall make no changes now that the result is known.

Much too much trouble, and if something is working reasonably well, why plunge into the unknown?

[richfool]

Do you any of you have any plans on changing investments, or addition investments as a result of the election? ...

Am I kidding myself trying to time the market? ...

None whatsoever and yes (IMV).

I made no changes in the run-up (sticking, for example, with the utilities) and shall make no changes now that the result is known.

Much too much trouble, and if something is working reasonably well, why plunge into the unknown?

I'm always keen to look for investment opportunities and happy to make adjustments to asset allocations if I see it appropriate.

The question to me now, is whether the current UK market spurt will continue, or whether it will drop back during the coming year as we get involved with various trade negotiations.

In view of the fact that the rest of the world tended to avoid the UK over the last couple of years, I would hope that they will start increasing their investments into the UK which should exert a positive affect, if not cause the UK to re-rate.

[Dod101]

I think that depends to a large extent on Boris and of course the Brexit deal. The trade negotiations are going to take a bit longer. However most of the pundits think we are likely to see significant inward investment (not sure why as we will no longer be quite the same gateway to Europe.)

The UK stockmarket though is cheap by world standards and so I would imagine there will be outside money coming in to it and that should certainly provide a boost. I am up about 12.5% this year so far even with at best stagnating big holdings in the likes of Shell and BP. L & G is up 30% on the year and still yields 5.3%. That surely makes it a target for buyers.

I will though just sit tight.

Dod

[vrdiver]

In view of the fact that the rest of the world tended to avoid the UK over the last couple of years, I would hope that they will start increasing their investments into the UK which should exert a positive affect, if not cause the UK to re-rate.

I suspect those foreign investors will want to know what the UK-EU FTA looks like before they get their wallets out. Whilst one point of uncertainty appears to have been settled as we now look to enter the transition period rather than a further extention period, there are still significant uncertainties about the shape and date of our actual exit from transition to full separation.

Market relief at a decision, any decision, will, IMHO, revert to nerves as we head into the summer. Foreign investment that has held back for several years likewise will be nervous to commit too early, when the details of an FTA could overturn any investment logic.

As others have said, this is the end of the beginning; significant, but not the end itself.

VRD

[colin]

Other than obvious stuff like F250 trackers, I would love to hear of ideas of funds, ITs, and indeed individual shares that will benefit from the normalisation of the UK market which we lost in 3.5 years ago. UK is cheap on most measures now.

WaO

UK commercial property ITs and ETFs I guess?

[johnhemming]

There have been two elements that have held back investment brexit and the threat of Corbyn. Brexit has been a bit resolved and the corbyn threat removed. There are still difficulties with the question of what the FTA will be, but even Canada- enables some planning. Sadly from my perspective remain now seems impossible

[hiriskpaul]

I am not sure where this idea that the UK market is cheap has come from, but I have heard it from various quarters. CAPE10 is around 16, p/b 1.7. That's average, not cheap. I would agree that the UK market is cheap compared to many other developed markets, such as the US, Japan*, Germany, France, Switzerland, Canada, Australia, etc. But I prefer to think of them as expensive rather than the UK as cheap! A particular problem with the UK market, compared to other developed markets, is that earnings growth appears to have stalled.

For cheap, look to the far east - China, Korea, Singapore, or if you are feeling brave, Turkey and Russia.

*Japan is arguable as it has quite a high CAPE10, average p/e, but the market trades on a low book value.

[scrumpyjack]

Of course in deciding the sensible valuation level for equities you have to look at the return available from fixed interest. This is so small and in real terms negative.

In that context one can certainly argue that equities are cheap, but that doesn't mean they won't get cheaper.

My view is that they are more likely to go up than down in current circumstances but I have retained a very high (too high) level of cash due to my time of life and recent large inflow from the Green King takeover.

The other point to consider in investment strategy is what the prospects for stirling are. I am minded to reduce further my exposure to the UK but am holding off buying more non UK equities for a while to see if the pound rises, which I think it will.

[johnhemming]

is that earnings growth appears to have stalled.

That I think arose from sovereign reality.