As dawn breaks, the morning light reveals yet another political gamble that has not paid off for the dice roller. The UK has a hung Parliament, with no party holding an absolute majority. Such is the unpredictability of a parliamentary democracy. If you ask the people of the UK what they think, be prepared for the answers that you might receive.
The last few weeks has highlighted the divide in opinion in the country of the role and size of the state in our lives, with further austerity and a shrinking state on the one hand, and a material rise in spending (and taxation for some) on the other. Each of us has our own feel for what we believe to be best for ourselves and the country, which we expressed at the ballot box yesterday.
More importantly, the last few weeks has united us with a deep sense of resolve that the values that we collectively hold as a nation are immutable: decency, respect, tolerance and democracy. Last night we saw what this truly means; Members of Parliament losing their seats, magnanimously shaking hands with their victors and accepting the right of the people to have their say.
Certainly, it is an awkward time for such political turmoil, with the start of the Brexit negotiations just days away. We will leave the ramifications of this result and the speculation of what we might expect next to others. We don’t want to add to the noise or a further sense of election analysis fatigue. Trying to double-guess the markets is a losing game, and you only need to look at the chart below, which covers 60 years from Anthony Eden to Theresa May, and shows that the markets perform regardless of who resides at Number 10.
What we do want to do is to reassure you that your portfolio is well positioned to weather any storms both now and in the future. It is worth remembering the following:
- Your portfolio is highly diversified through the thousands of equities and bonds that it holds and the countries that it is invested in.
- Your non-UK equities are unhedged, which means that you hold this portion of your portfolio in non-Sterling (GBP) currencies. In the event of a fall in the value of Sterling, as we have initially seen, these overseas assets will be worth more in Sterling terms.
- Your bond holdings – which are hedged – are diversified across global markets, reducing the impact of any rise in the cost of borrowing that might occur on account of the greater uncertainty that the UK faces at this time.
- While markets don’t like uncertainty, the UK is a small player in the global pond and this morning’s result is just a ripple.
- Portfolios go up and down; they always have and they always will. If you don’t need to spend the money today, don’t worry about what happens in the coming days, weeks and months.
We live in a tolerant, open society – and by the look of the greater level of engagement in the election by the younger generation – a great democracy that cares passionately about its future. Put the kettle on, have a nice cup of tea or coffee and celebrate this next – if unpredicted and a little uncertain – step for our nation.
If you would like to speak with us about this or any other matter, please feel free to give us a call.
At Capital, we invest for the long haul, not for the day trip.