Neil Birrell, Premier Miton’s Chief Investment Officer and lead manager of the Premier Miton Diversified Fund range, contemplates whether the result of the UK general election could attract investors back to our markets – and tells of tales from the shop floor as he speaks to Premier Miton’s fund managers.
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The surprising one: UK politics provides stability
Sir Kier Starmer is the sixth Prime Minister we have had since the Referendum held on the UK’s membership of the EU in 2016. Following David Cameron’s resignation, none of them have been long lasting, indeed one set the record for the shortest tenure in history.
It would be difficult to describe the British government as having been stable over that period. There have been scandals, resignations, disagreements, disastrous budgets and much more that led to the UK being an easy place for investors – domestic, international, private and corporate (company) alike – to avoid. Clearly, very high inflation and stagnant economic growth made the situation worse, or maybe one begat the other. But, no matter, things have changed.
Let’s put to one side any discussion about the percentage of the votes cast or the percentage of the total electorate that took the Labour party to a very large majority, and let’s work with what we know.
We have a centre left government for the next five years that has promised sensible financial management and not to raise the tax burden significantly or to overspend on unfunded projects. If they are good to their word, it would be reasonable to expect economic expansion, which would be supportive of companies that have a domestic focus (usually medium and smaller-sized ones) and also Sterling.
Similarly, domestic bond markets, particularly corporate bond markets, should benefit, as would the commercial property sector. In other words, a good environment for investing in UK assets.
Whilst investors and corporates abandoned the UK over the years, they invested their money elsewhere, with the US and Europe being obvious recipients. Well, the political backdrop in those regions has moved in the opposite direction from the UK.
I won’t detail what has gone on in the US, you will have read about it, heard about it and seen it!
The odds, as it stands, are heavily in favour of Donald Trump reclaiming the White House. That brings with it the possibility of a foreign policy that creates issues with the Chinese and a domestic policy is likely to be supportive for economic growth, but it could also be inflationary and interest rate cuts could be less likely.
Again, the elections in Europe, specifically France, have hit the headlines. The change in the political landscape there is, at the very least, uncertain, and possibly disruptive enough to drive investors away from the region.
How things change. We sit here in the UK offering political stability to investors from all over the world. I have been an advocate of the UK stock and bond market for a while, and now there is another significant reason to be one.
The less surprising one: our fund managers like their funds
I can talk and write about economies and financial markets all I like, but what really matters to the investors in the funds we manage is what those funds are actually invested in. In other words, it’s not so much how the FTSE All-Share Index performs or whether the bond markets rise or fall that matters (although clearly that has an impact), what is really important is how the share prices of the companies we are invested in behave, or if the bonds are priced attractively and make their interest payments.
When I talk with the fund managers of the range of funds we manage, whether they be multi-asset, equity (company shares), bond funds or more specialist ones, we will inevitably talk about the outlook for the US equity market and how the giant companies (such as Microsoft and NVIDIA) are dominating the headlines.
We talk about whether there will be an interest rate cut in the UK next month or consider: why are smaller companies looking so cheap in most regions of the world? It’s always interesting to garner their views. It forms a part of the investment decision-making process.
We will discuss the outlook for “the market”, which usually refers to the UK or US equity market, or whatever their specialist area is. But, again, that’s very general. It’s when we start talking about the investment portfolio they have constructed for the fund they manage or the individual holdings within the fund that it all gets more exciting.
The UK equity team can all find great long-term prospects in small, medium and large companies. The US equity team have grave concerns over how expensive the shares of the likes of Microsoft and NVIDIA are looking but see amazing prospects for many other companies and sectors in the US.
Looking at more specialist parts of the equity market, it is similar for infrastructure companies around the world – from power generators to airport operators, much of the pan-European property company sector has rarely looked so attractive through history.
I am sure you get the picture. The point is that even though equity markets have been strong, there are still great opportunities within them: you need to know where to find them.
You would like to think that the fund managers are advocates of their investment strategies; they are and should be.
However, they are also charged with managing the risk within the fund (not just the return potential) and therefore focus on mitigating risks, such as falling share prices.
This can be achieved through diversification and good company selection amongst other factors.
There are always risks. Currently, in the short-term, one is presented by overall market levels, but within them there are many exciting long-term opportunities.
Neil Birrell
Chief Investment Officer
