The election result is big news and likely to dominate headlines. I’d like to share our stance from a financial advice and investing perspective. Long story short, there is little connection between the change in government and the investment markets, although we’ll be keeping a close eye on taxes and other relevant policy changes. We don’t see anything immediately requiring attention, but we seek to capture opportunities as they present themselves.

Summary of the Election Impacts for Investors

Here is where we stand after the UK election—with our perspective as your financial adviser, not politicians:

• The Immediate Market Impact

The Labour Party victory was already priced into markets, where we’ve seen only tiny moves across stocks, bonds and sterling. UK stocks and bonds increased slightly when the result was confirmed, but by less than 1%. The pound sterling also increased by a very small amount. All this to say, the Labour Party landslide victory was neither cheered nor jeered by investors, which is consistent with our message that politics and investing are two different things.

• Policy Impacts

The obvious risk from a financial planning standpoint is taxes. In this regard, we may see changes to capital gains tax and other potential implications, but it is too early to tell what will pass. Importantly, Keir Starmer has backtracked on some of the more controversial policies, such as the pension cap, so we don’t expect any major or immediate surprises.

On the economy, we may see some improvements. For example, the commitment to build 1.5 million new homes over 5 years, if achieved, could help boost the economy. Tackling the NHS backlog could also support the economy, although won’t be easy. Finally, the proposal to for a £7.3 billion national wealth fund could be additive for companies in green energy industries, but it is unlikely to impact your portfolio.

Finding the Opportunities Post-Election

Many investors are especially interested in the impact of the UK election on their portfolio. However, before considering the impact, it is worth reminding ourselves that mixing politics and investing is like oil and water. They don’t mix. Why? The connection between government policies and company profits rarely has a visible impact in practice.

That said, the post-election period is an area we can potentially add meaningful value. Here are some of the areas we think about when trying to extract value for our clients:

• Avoid the trap of post-election speculation. Chief among this trap is the temptation to react too quickly or with too much confidence in the outcome of this event. For example, Donald Trump was supposed to be bad for global tech, while Brexit was supposed to be bad for the FTSE 100. Both are now at or near all-time highs.
• Look for mispricing if others trade with emotion. Political change instinctively has an impact on investment markets in the short term but rarely has a durable impact in the long term. Hence, such episodes can create opportunities for long-term investors who are prepared to think independently.
• Ensure your overall portfolio is robust and well-structured for the path ahead. The last 14 years could look different from the next Labour Party years—but the principles and standards of wealth building don’t change. Key to this is remaining firmly focused on the long term.
• Keep trading costs low so the hurdle for positive outcomes is more probable. It is important to remember that in the absence of a fundamental change in the outlook for assets in your portfolio, we should stay the course and avoid creating activity for activities sake.

We Look Ahead Positively

As you can see above, we have many opportunities to potentially add value post-election, but we do not recommend any action at this time.

With respect to varying investor views, we remain optimistic about the landscape ahead. Your financial plan remains sound and we feel great about our ability to reach and surpass your goals. The election has little to do with that financially, but we take comfort from the early response in markets, with little to no movement in prices.

We’re also hopeful it may pave the way for a period of relative calm. Investors don’t like uncertainty, which could arguably now be reduced. The future direction of markets will never be linear, but we stand ready to support you through the cycle.

We hope the above provides a useful summary of the way we approach events like the election. As we hear more about what this new government might bring by way of taxes and other policies, we’ll be in touch with insights relevant to your financial plan and goals.

If you have any questions, please don’t hesitate to ask. We are here to help.

Kind regards,

iPensions Wealth Team

Investment risks

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*Note: All data sourced from Morningstar Direct, as of 5th July 2024.

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