27th April 2015
With just over a week to go until the UK General Election, how should investors position themselves for life after 7 May? Tom Stevenson, investment director at Fidelity Personal Investing offers his top five fund picks for the uncertainty ahead of the election…
1. Lindsell Train UK Equity
The first of our five funds, therefore, focuses on quality and certainty. I have written recently about the increasingly high price, which investors are being asked to pay for these characteristics, but it is not surprising that reliable earnings streams should trade at a premium. That’s why I still like Nick Train’s Lindsell Train UK Equity Fund. A glance at the top stocks in Train’s highly-concentrated, high-conviction fund reads like a short-list of some of the world’s strongest brands and highest-quality companies. Top of the list is Unilever, followed in the top five by Reed Elsevier, Diageo, Pearson and the London Stock Exchange.
2. Fidelity Global Dividend
One of the attractions of the UK stock market ahead of an election that’s too close to call is the fact that it is a very internationally-focused market. That said, many investors may take the opportunity to re-assess whether their portfolio has too much home bias. The best way to diversify away from the UK is probably via a global fund and the one I like at the moment is Fidelity Global Dividend Fund, managed by Dan Roberts. The fund has just celebrated its third anniversary, which will put it on the radars of more cautious investors who demand a decent track record before taking the plunge. During that period, Dan has been comfortably among the top quartile of his peer group and the fund is a great way to tap into the growing number of high-quality companies around the world paying high and sustainable dividends to their shareholders.
3. Liontrust Macro Equity Income
The flip-side of uncertainty is opportunity. The third fund in our pre-election list is, therefore, a fund where the managers have demonstrated an ability to think laterally about what the implications of the vote might actually be. Jan Luthman, co-manager of the Liontrust Macro Equity Income Fund, has highlighted the sectors he expects to be the winners and losers from the latest policy announcements. He’s avoiding utilities, an obvious victim of Labour’s proposed energy price freeze and a sector that will be hurt by rising interest rates. He also dislikes incumbent high street banks, whose fortunes are being driven by political and regulatory imperatives, but likes the challengers and wealth managers, which will benefit from rising markets and demographic changes. Tobacco gets the thumbs down thanks to smoking bans and squeezed margins while healthcare is a big opportunity thanks to increasing political awareness of the importance and fragility of global health.
4. Artemis Income Fund
No-one knows what the market reaction to the election result will be but top of many observers list of possible outcomes is weaker sterling. A fall in the pound would play into the hands of UK equity income funds thanks to the increasing value of dollar-denominated dividends, which many of the biggest constituents in these funds pay. There is no shortage of good equity income funds but one that consistently performs is the Artemis Income Fund, run by Adrian Gosden and Adrian Frost. This is a big fund, investing in big companies like HSBC, Shell and Astrazeneca so it is likely to appeal to investors who are worried about ongoing uncertainty in the market in the event of a hung parliament or if people start to worry about an EU referendum, for example.
5. Old Mutual UK Smaller Companies
The opposite outcome, greater certainty, seems unlikely but may be the contrarian position to take ahead of the election. The biggest beneficiaries of a majority government might well be the smaller companies which have underperformed in the past year or so and look relatively good value today. We like the look of Dan Nickols’ Old Mutual UK Smaller Companies Fund. Old Mutual has a highly-regarded UK investment team, boosted when Richard Buxton joined from Schroders, of which Dan is the head of the smaller and mid-cap team. He adopts a pragmatic approach, using both top-down macro-economic and sector analysis together with bottom-up stock analysis.