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How fund managers are preparing for Labour victory

Multi-asset investors are taking steps to prepare for a run on the pound if the Conservative meltdown continues.

 
How fund managers are preparing for Labour victory
 

Twelve months ago the prospect of a Labour government seemed implausible. Fast forward to today and there is a real possibility Labour could be in power in months, as the Conservative party becomes mired in a series of self-inflicted crises.

If that does happen there will probably be a seismic shift in the direction of fiscal policy and, possibly, dramatic changes to inflation and the value of sterling. Indeed shadow chancellor John McDonnell told the Labour party conference in September he was preparing for a possible run on the pound if the party wins an upcoming election.

Evidence fund managers are seriously pondering a Labour government was demonstrated by investment bank Morgan Stanley, which last week warned of the party's policies on UK listed companies.

‘We believe that the domestic political situation is at least as significant as Brexit, given the fragile state of the current government and the perceived risks of an incoming Labour administration that could potentially embark on a radical change in policy direction

In response Corbyn released a video saying Labour was a 'threat' to Morgan Stanley and a system 'rigged for the few'.

Gilty displeasure

‘If Corbyn did get in, there is unpredictability as to what might happen to gilts,’ said Will McIntosh-Whyte, assistant multi-asset fund manager at Rathbones.

‘McDonnell has already flagged, if he were to get in, we are likely to see sterling sell off and we tend to agree with him.’

McIntosh-Whyte said a rise in inflation, driven by increased import costs, could lead to further interest rate rises, with a knock-on effect on gilt prices. ‘Any sterling weakness, whether due to a Labour government or Brexit, will lead to imported inflation. Sterling would have to fall a long way to force the Bank of England’s hand, but if inflation rose to 4% then I think gilts would be a fairly unattractive asset.’ 

One of Labour’s key promises is nationalisation of certain industries, such as railways, energy firms and the postal industry. This would probably have a dramatic effect on some stock prices, according to Citywire AA-rated manager Toby Nangle, multi-asset fund manager at  Columbia Threadneedle.

Nangle said certain stocks that could be in line for nationalisation may be vulnerable, depending on the price paid for them by a Labour government. ‘Nationalisation without fair investor compensation would be negative for investors holding these stocks,’ he said.

He added a Labour government would lead to a ‘much steeper yield curve and long-dated yields would rise in anticipation of more inflation’. However he stressed he was not allocating assets on this basis at the moment.

Notes from a small island

John Husselbee, head of multi-asset at Liontrust, said UK political uncertainty, particularly around Brexit, may currently be high on investors’ minds. But it paled into insignificance compared with other external factors, he said.

‘Our market concerns are still driven by the three Cs: central bank policy; China and whether it is slowing down; and commodities and whether the oil price is going up or down, which will dictate inflation across the global economy. Those three things are the biggest factors in the markets going ahead. We live in a global economy and the UK represents no more than 10% of the world’s stocks.’

Husselbee said it was important to have enough global diversification to ensure an event such as a Labour election victory and corresponding fall in sterling would not be overly significant. He added this currency change would also happen before the actual election event.

‘If the markets feared [Labour coming into power], it would get priced into sterling very quickly. But whether there will be a Labour government or not is pure speculation.’

26 comments so far. Why not have your say?

Micawber

Dec 06, 2017 at 15:56

Glad to see others are catching up to this risk, a serious one - Brexit is not the only potentially damaging scenario, but the financial media's preoccupation with it to date has obscured this red swan....

Blimps will doubtless write that Corbyn has 'no chance' of coming into power, but the polls show Labour with an 8% lead currently, the current government is handing by a thread with fracture-lines all over the place, and Theresa May has demonstrated that she is about as good a campaigner as a hunted deer.

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Andrew Hill

Dec 06, 2017 at 17:44

Unfortunately the Tories are failing to get their message over to the large number of uncommitted voters.

In the days of Bernard Ingham they were well ahead of the game but they seem to have failed to grasp the power of the internet.

The very real danger of what Labour policies would do to the economy of this country is frightening. The young who have embraced Jeremy Corbyn so enthusiastically need to realise that the bill will ultimately drop on their doormat.

This is the challenge that the Tories need to grasp.

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anglo29

Dec 06, 2017 at 18:20

#Aynitesndrew Hill.

But how do you convince a young Corbynite generation of impending financial disaster if their "hero" gains power, when they naively think that flowers and candles are the answer to every terrorist outrage?

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richard tomkin

Dec 06, 2017 at 19:40

We have had Labour administrations before,and we will no doubt have them again.The Attlee "Terror" of 1945-1951 was,in retrospect,a tame affair.None of the industries nationalised were "confiscated" in the sense of expropriation.Some of the original owners were richly compensated,and in the main the 1950's were a period of growth.Yes,McDonnell has said he wants to smash capitalism,but we can all play to the crowd,and a month in office will soon concentrate their minds.In a free democracy,there can be no entrenchment of any particular ideology,and governments come and governments go,as the electorate ordain.It may be a road strewn with obstacles but I think most long term investors can survive a Labour administration.

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Peter Paddon

Dec 06, 2017 at 22:22

Richard you mention a "free democracy". What makes you think we will still have a "free democracy" if Corbyn gets the keys to No 10 with a reasonable majority. Given the way that moderate Labour MPs are under threat of deselection, and moderate Councillors have already been deselected there must be a substantial risk that Communist Labour will legislate against free elections or find some alternative way of rigging elections all in the name of democracy of course.

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richard tomkin

Dec 06, 2017 at 22:59

@ paddon : I am no Labour supporter,but I do feel your forebodings are a little lurid.After all,if we cannot countenance the interplay of competing political groups in free and fair elections,we cannot honestly call ourselves democrats.

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John W

Dec 07, 2017 at 07:17

One way Labour could deal with a run on the pound would be to impose capital controls. These would appear to work, until the day they were lifted, when all hell would be loosed.

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anglo29

Dec 07, 2017 at 10:55

@tomkin

Richard, would you consider the reported widespread "double voting" by student supporters of Corbyn (i.e. once in their home town, and again in their university town) "free and fair"? Who arranged for this to be possible?

Also the falsification of residential records in a notoriously corrupt East London borough whose (now deposed) leader was openly supported by Corbyn and Livingstone on TV. I was part of an investigative team in this area at the time, one elderly Somali couple we called upon ( with limited understanding of English) were visited by "council representatives" who told them not to worry about filling in the electoral roll forms, they would do it for them. They were most surprised when we revealed to them that according to local records; 9 Bengali males were living in their two-bedroom flat.....It's not likely any of these "mysterious residents" would be voting Conservative.

Is this "free and fair"?

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richard tomkin

Dec 07, 2017 at 12:05

You make some good points,though none of them new.If you are concerned,your best port of call would be,not a discussion board on investment,but the police or the Electoral Commission !

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anglo29

Dec 07, 2017 at 13:44

The evidence was well publicised at the time, and probably helped in the suspension of Tower Hamlets Council, putting that authority into administration. No condemnation from the current Labour leadership though.

As for the alleged "double voting" by students at the last election, my understanding is there was supposed to be an investigation, but whether a government with such a slim majority will want to "rock the boat" is debateable.

It matters, because this thinly disguised Marxist opposition will adhere to their rigid dogma regardless of the financial consequences for the country.

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richard tomkin

Dec 07, 2017 at 18:37

As I am aware,this is supposed to be a discussion about how fund managers are positioning themselves for a Labour victory at the next election,It is best confined to that,I feel.

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Andrew Stevenson

Dec 07, 2017 at 19:33

There is absolutely no chance of the Tories not winning the next election. The manifesto will include an Alzheimer tax, the cessation of winter fuel payments after a means test (but without stating what income levels will cause cessation). Then to make absolutely sure and because it's a hugely popular idea they will vow to bring back fox hunting. What could possibly go wrong ? Thank goodness the Tory party has such a huge deep pool of brilliant talent.

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richard tomkin

Dec 07, 2017 at 20:40

Don't shoot my fox,I want to hunt it instead !

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alan franklin

Dec 10, 2017 at 09:16

I am pessimistic about the future and have invested in gold. The pound will fall whatever happens, but especially so under Labour, which I believe will certainly be in power, perhaps as soon as 2018.

The Conservatives have never been good communicators and I once advised them on this point. However, you need good news to communicate and the May fiasco provides none. She is probably the most disastrous Prime Minister of recent times, and that is saying something.

The buy-to-let market will be toast, with bad effects for both landlords and renters.

As hard core Marxists are the new face of Labour, the economy will be fast destroyed and even younger people I know are talking about getting money out of the country.

From all utilities, previously a safe place to invest for good dividends, to transport and even healthcare - with caps on prices for drugs likely - a swathe of devastation will be cut through stocks and pensions.

Those of us aware of this had better start telling young friends and relatives to wise up fast!

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richard tomkin

Dec 10, 2017 at 10:27

@ franklin My God,there will be a queue at Beachy Head !

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andy

Dec 10, 2017 at 10:32

Now John Redwood has publicly stated that he advises to disinvest in the UK - and people "fearing" a Labour government here.

Other than investing in Gold (yuck) and Germany (almost certainly the main beneficiary from BREXIT) - are there any other plans? FTSE100 companies paying overseas dividends maybe a good play?

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Alan Tonks

Dec 10, 2017 at 10:55

Well the Conservatives have sold this country out on numerous occasions and they are worthless.

If the Labour Party or the Anarchist party under Peter the Painter Corbyn ever got in, change number 10 to 666 pure evil.

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Mark Stringer

Dec 10, 2017 at 11:44

As one of the "blimps" Corbyn only has a chance of doing any more in No10 than cleaning the carpets because the feckless yoof, prat media and "interested" parties would sell us out.

It is a bloody shame that the choice is a lying champagne socialist who has learnt sod all in all his years in Parliament, lying greedy self serving tories or the same as all the others when allowed near power; lying libdims.

No one really is going to vote nationally in any significant number for independent candidates (not UKIP, but independents) to at least break down the cosy party system that betrays us at every election.

The reality is that we need many years of true austerity to actually get this country back to some sort of even keel. Few would really make the necessary personal sacrifices.

The number one aliment in this country used to be backache from hard graft, today it is neurosis from having been spoon fed by gormless parents, (sold a future that will never exist by politicians to those lazy gormless parents) and THAT now has the vote, so who knows about Corbyn.

I know I have seen the best of times at age 60 and personally still have enough pride to want to live on my feet than die on my knees.

The only people who need not concern themselves with which clown is in No10 are those wealthy enough for it to make no difference whatsoever.

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anglo29

Dec 10, 2017 at 12:58

I tend to agree with Mark. If there were an election tomorrow, my vote would have to go to the "None of the Above" Party. We have a government that seems to have forgotten that some 75 years ago, this country had the courage to stand alone against a different kind of German threat while the rest of Europe capitulated. Where is that courage today as they meekly give way to the demands of the unelected gnomes of Brussels?

Farage is the only one who seems to have any backbone, but he lacks an electable Party behind him, while Corbyn & Co. try to convince the masses that bashing the bankers is the cure for all their problems.

Investment wise, apart from Strategic Bonds for income, I see a glimmer of hope with Far East trusts, if the manic North Korean leader can be kept quiet. Also UK Smaller Cos. seem to be doing quite well, possibly because they trade mainly in the domestic market, but for how much longer?

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andy

Dec 10, 2017 at 16:34

Anglo

Farage has no backbone at all - he is just a puppet of some very rich people who want a low tax / low wage / trash the planet environment - and no one is willing to stand up to the UKIP / Tory paymasters. Much like the US far right supported (but not led) by Trump.

Politics aside - I tend to agree with you that there is little to interest. Working on the mainland I see a lot more hope in Sweden, Denmark and Germany and mainland Europe is likely to take longer to go into recession than the US and Britain.

When you talk about Far East trusts - do you include Japan in that?

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anglo29

Dec 10, 2017 at 18:18

Andy.

Re. Japan, I have a small investment in Japan, but it's not doing much at the moment, From time to time it's promised much, but doesn't seem to deliver. I'm mainly referring to the smaller Far East nations plus Australia.

Re. Farage, I was mainly referring to him re. his willingness to stand up for Britain and expose EU corruption, such as the alleged disappearance of millions of tax payers money from the books, and those accounts not being properly audited etc. I certainly don't support his earlier endorsement of Trump

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andy

Dec 10, 2017 at 19:01

Anglo29

Re: Investments - okay - that's helpful. Am not a big fan of the smaller far east countries as I suspect there is poor corporate governance - question is whether the increased gains make it worth the additional risk.

Regards the corruption in the EU - I researched this and my understanding reading both sides was - its not as good as the remainers make out and not as bad as the leavers make out. The important thing (for me) was that if the UK had to audit in the same way as the EU does - the NAO would not be able to sign off the UK accounts. So - seems that is all political games.

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anglo29

Dec 10, 2017 at 20:08

Andy.

I've found over a period of time, my most reliable funds have been Strategic Bonds and Multi-Asset funds, mainly for income. Sustained growth seems a real problem in the current environment, with the Far East seeming to be the best bet, and (you might think strangely) UK Smaller Cos.

Yes I'm sure there is corruption everywhere, it's just that I recall reading about the time the EU authorities brought in an accountant to do an audit of their previously unaudited books. She found millions had gone "missing", some allegedly into private Eastern European bank accounts.....Her reward for revealing this?...apparently dismissal. Recently a TV documentary revealed secret Nazi connections and funding behind the Brussels EU...plus it seems plans for the UK to eventually become a province in a kind of Greater Germania........Having two ancestors who gave their lives defending our island, uncomfortable reminders of the last century for me I'm afraid.

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mc2

Dec 10, 2017 at 20:29

Hopefully a labour win. Hopefully Labour will end austerity and nationalise... nationalisation will make the top businesses realize they better behave or lose it... Stop a free for (the richest) all it's desperately needed...

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andy

Dec 10, 2017 at 20:36

Anglo29

So - in terms of multi-asset - which do you use - and do I assume you are in "draw down" phase or still building assets?

I'll leave the rest - I'll say I see the UK being as corrupt as the EU (as most of the corruption is due to the national governments) and having family on both sides of WW2.

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anglo29

Dec 10, 2017 at 20:58

andy

Premier Multi-Asset Monthly Income, Fidelity Multi-Asset Monthly Income (though this one's gone a bit "flat" over the past couple of months)

Threadneedle Monthly Extra Income...this is an equity & bond fund that has performed excellently for me over the long term.

All of these are held within ISA's built up over the years, mainly to produce regular income in retirement, although they've also produced decent growth over a number of years.

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