Our expert guide to cashing in on the Boris bounce
Don’t fret if you missed Friday’s Boris share bounce – there’s still plenty of time to cash in on the Tory triumph
AT LAST, there is light on the horizon. A brilliant light. A yellow brick road to Brexit and beyond – with swashbuckling Boris Johnson leading the charge, backed by his 364 joyous Conservative MPs.
So goodbye to Jeremy Corbyn (hopefully sooner rather than later) and his dream of turning the country into a socialist state where wealth creation would have been despised and taxed to the hilt.
And a hearty hello to a Government that, touch wood, will now help re-energise the country and with it our own personal and financial fortunes, however modest our wealth may be.
Or as longstanding reader Eddie Browne put it quite joyously (and to music as well) in a phone call to me at the crack of dawn last Friday from his holiday home in Tenerife (yes, the sun was shining and yes, I was still in bed):
‘Oh what a beautiful morning,
Oh what a beautiful day,
I’ve got a wonderful feeling,
Everything’s going my way.’
More Ian Dury than Peggy Lee-like in terms of delivery (my ears still ache from the experience), but it got me out of bed and Eddie (as ever) was bang on the investment nail – ‘stock market up, the pound surging ahead, what a wonderful day’. At last, a near euphoric wave of optimism that the country is finally back on track after more than three years of political imbroglio.
So time to rejoice – Eddie even took time out to wish me and my mum a merry Xmas given I was now off so many Christmas card lists – most notably, those of Jeremy Corbyn, John McDonnell and failed fund manager Neil Woodford.
As I have consistently argued in these pages over the past month, a Labour government would have wreaked havoc with our personal finances and in particular our investments – be they a pension, an Individual Savings Account or a share portfolio.
For a start, Corbyn and wannabe wealth hatchet man McDonnell would have seriously curtailed our ability to manage – and profit from – our hard won wealth with a series of swingeing tax increases on both capital gains and dividend income, supported by draconian reductions in corresponding annual tax-free allowances.
Taxes and reductions that would have effectively killed off the investing habit instilled in many of us by Margaret Thatcher’s radical privatisation programme kickstarted in the 1980s.
More broadly, some of the policies the terrible two intended to unleash on the economy would have been nothing but anti-business (and by implication anti-investor). Rampant renationalisation, higher corporation taxes, new windfall taxes – the list goes on.
All steps that would have had a negative impact on our investments. But this political threat has now been extinguished – and we can look forward to the future with greater confidence and without uncertainty lurking around every corner.
Certainly, these are the key messages that City experts have been bombarding me with since Eddie woke me from my slumbers on Friday morning.
‘Although the UK faces plenty of challenges ahead – like everywhere else – huge uncertainties have been lifted,’ declared Jamie Clunie, an investment manager at Jupiter. ‘This is good for share prices and sterling.’
Marcus Brookes, investment whizz kid at Schroders, was also in confident mood. He said a Conservative Government would provide ‘political stability and relatively businessfriendly policies that should support economic growth and investing’. He believed investors would respond by increasing their exposure to higher-risk investments such as company shares and reduce holdings in lower-risk investments such as Government bonds. ‘Prices follow demand so I would expect share prices to increase.’
Others such as Tom Stevenson, a director at asset manager Fidelity, forecast that overseas investors – big international pension funds and sovereign wealth funds – would view the disappearance of the risk of a Labour government as a positive, offering the potential for a rerating of UK’s out-of-favour equity market.
Markets responded in positive fashion with the FTSE 100 and FTSE All-Share stock market indices moving strongly ahead on Friday – while the pound increased in value against both the euro and dollar. Moira O’Neill, head of personal finance at wealth manager Interactive Investor, said that many investors would be popping a few pre-Christmas champagne corks as a result of the greater political and market certainty stemming from the emphatic Election result.
She said Johnson’s Withdrawal Agreement Bill should now get through Parliament untroubled, bringing to an end more than three years of political turmoil.
Yet, like others, she had words of caution, stating that trade talks and continued negotiations between the European Union and the UK would ‘not be easy or plain sailing’.
In similar vein, Stevenson said any difficulties over future Brexit negotiations could bring any market rally to an end. He also raised concerns over the amount of new borrowing the Government would have to commit to in order to deliver on its campaign promises. Markets do not like rising Government debt or spending plans that could see inflation picking up.
For many investors, they will see the weeks ahead as an ideal time to put cash into the market that they have been hoarding for the past three and a half years (since the Brexit referendum). Others will look to adjust their portfolios to reflect the new feelgood factor about UK equities.
But it is not as straightforward as some may think. The market will not go up in a straight line, nor will all shares respond favourably to the new dawn under Boris Johnson.
As my colleague Joanne Hart reports overleaf, companies focused on the UK domestic economy – for example housebuilders and some of the UK-orientated banks – are likely to do best as a result of greater political certainty, allowing them to start planning for the future and investing in their businesses.
Conversely, some of the biggest FTSE100 stocks – the likes of BP and Shell – could be held back by a revitalised pound, making their exports more expensive and reducing the value of their overseas earnings.
This would be reflected in lower profits, lower dividends and probably lower share prices.
Invesco fund manager Mark Barnett has been widely criticised – including in this Wealth section – in recent months for clinging to a belief that domestically orientated UK equities offer the best potential long-term returns for investors.
It’s a view that contributed to the loss of a contract last week to run the £1billion stock market-listed Edinburgh Investment Trust (see page 92) and has resulted in investors deserting the Invesco funds he runs in droves.
Yet he now believes that post Election, the domestic stocks he loves provide investors with the ‘greatest risk adjusted opportunity’.
The greater challenge in the UK equity universe, he maintains, now lies with companies ‘whose overseas earnings will be negatively affected’ from the pound’s revitalisation.
‘The long-term, lasting opportunity within UK equities,’ he concludes, ’remains compelling.’
So what should investors do? Where should they invest any spare cash they might have? What portfolio fine-turning should they be doing if any?
On Friday, we asked a panel of leading investment experts for their opinions – including details of any investment funds or stock market-listed investment trusts that
might give investors the best chance to maximise returns over the next five years.
They are not recommendations, nor endorsed by Wealth, just good ideas from people who know what they are talking about.
Funds or trusts that could form part of a broadly diversified investment portfolio – and I can’t stress the importance of diversification enough.
I know it’s an overused cliche, but don’t put all your investment eggs in one basket.
Spread your money across a range of funds. Overleaf, Joanne Hart gives some of the listed UK stocks – not investment trusts – that she believes could thrive under a strong Conservative Government.
ADRIAN LOWCOCK CHARTERED WEALTH MANAGER, WILLIS OWEN
WILLIS Owen’s Adrian Lowcock cautions investors against chasing market rallies – dubbed on Friday the ‘Santa Rally’. Yet he believes the UK market is in a stronger position than it has been for many years.
He says: ‘A Conservative majority gives some certainty over Brexit and has removed the risk of the anti-business policies of the Labour manifesto impacting on the stock market.’
Lowcock believes it is important that investors have their portfolios well diversified – across both assets and markets. ‘Having a portfolio positioned for one outcome is a high risk strategy,’ he warns. Yet the funds that he believes will fare the best in the next five years are those focused on undervalued UK businesses – domestically focused and overlooked by investors because of Brexit uncertainty and concerns over the future course of the economy. Among his favourites is the £1billion investment fund Investec UK Special Situations, run by ‘seasoned and talented’ manager Alastair Mundy. It invests in companies that have underperformed the market but where Mundy is convinced there will be a turnaround in the value of the shares. Top ten holdings include builder’s merchant Travis Perkins and Royal Bank of Scotland.
Adds Lowcock: ‘Mundy and his team use a well-established investment process, contrarian in nature, that seeks to invest in undervalued companies that at some stage will be appreciated by the wider market. It’s a structured process and focused on generating long-term returns for investors.’
Mundy is also confident that his investment strategy on Investec UK Special Situations will bear investment fruit. He says: ‘With positions in UK-centric banks, builder’s merchants, UK food retailers, DIY and housebuilding, we expect that the newly elected Conservative Government will be positive for the fund.’
Lowcock also likes Schroder Recovery, another £1billion fund that looks to make money for investors from buying undervalued UK companies. Among its top ten holdings are RBS and Lloyds.
Both funds have underperformed the FTSE All-Share Index over the past five years, but Lowcock attributes that to their investment style – ‘value investing’ – being out of favour. The funds are not dividend focused although the 3.4 per cent annual yield on Schroder Recovery is reasonable (the Investec fund yields 2.6 per cent).
MOIRA O’NEILL HEAD OF PERSONAL FINANCE, INTERACTIVE INVESTOR
LIKE Willis Owen’s Lowcock, O’Neill believes the best investment opportunities lie with funds investing in domestically focused UK companies. She likes investment trust Henderson Smaller Companies and fund Amato UK Smaller Companies, which invests in companies with market capitalisations below £1 billion.
Yet she says investors should not hurry to invest. A better approach, she adds, may be to drip money into the market over the coming months rather than in one go.
She also believes that investors should ensure their portfolios are broadly invested across markets – here and overseas. Such diversification can be obtained by buying internationally invested trusts such as F&C and Murray International. The £3.9billion F&C trust has an unbroken record of annual dividend increases stretching back 48 years. Relevant Stock Exchange codes for these trusts are given at the end of the article.
BRIAN DENNEHY MANAGING DIRECTOR, FUNDEXPERT
FUNDEXPERT’S Dennehy believes the first thing Johnson’s Government should do is address some of the issues facing those ‘pragmatic working classes’ that voted for it in droves. For example, more affordable housing, easier access to GPs, and trains running on time.
If the Government does this, he says it will provide a considerable ‘boost’ to the domestic economy – which will revitalise the fortunes of many listed small and mediumsized UK businesses. Win, win.
Dennehy says investment funds ideally placed to benefit from any boost to the UK domestic economy include Schroder Recovery, Liontrust UK Smaller Companies and JO Hambro UK Equity Income. The latter fund offers investors an attractive annual yield of 5.4 per cent.
He says a stronger pound will be ‘negative’ for funds investing overseas – and for many FTSE 100 companies with international operations.
‘The investment opportunities are close to home,’ he says.
JASON HOLLANDS AND BEN YEARSLEY DIRECTORS, TILNEY AND SHORE FINANCIAL PLANNING
TILNEY’S Jason Hollands says the UK stock market now looks a lot more investible for foreign investors, driving up share prices. Preferred funds include JO Hambro UK Dynamic and Axa Framlington UK Mid Cap, and investment trust Fidelity Special Values.
Shore’s Yearsley says there is no reason to avoid owning UK stocks.
‘If you’re underweight, buy more as a huge part of market uncertainty has been removed’.
Favourite funds include Man GLG UK Income, managed by Henry Dixon who Yearsley says has ‘built up a strong track record of identifying unloved UK dividend stocks’. He also likes UK invested trust Temple Bar, managed by Alastair Mundy of Investec UK Special Situations, and Montanaro UK Smaller Companies – another investment trust.
... AND THE INVESTMENT EXPERT OUT IN TENERIFE
LATE ON Friday night, I managed to track down Eddie Browne to a bar in Tenerife. Amongst the clinking of glasses, and without prompting, he said he would be looking to buy exposure to the FTSE250 Index through a cheap tracker fund – from the likes of BlackRock or HSBC. He also said he would be happy to buy a fund tracking the FTSE100 Index as well as buy international stock market exposure through an investment trust such as FTSE100-listed Scottish Mortgage, managed by Baillie Gifford.
‘Buy the UK,’ he implored. He should be working in the City for one of the big investment banks. ‘Oh what a beautiful morning, Oh what a beautiful day,
I’ve got a wonderful feeling, Everything’s going my way.’