Britain has a new Prime Minister. Andy Burnham took office in July, the seventh person to hold the post in a decade. A change like this understandably draws attention. New ministers mean new priorities, and inevitably, a lot of speculation about what it all means.
What changes, what doesn’t
Some of that speculation is fair. Certain policy decisions can have a real, personal impact on tax, on pensions and on business. We watch that closely, and we’ll always tell you when something changes that’s worth acting on.
But your portfolio is a different matter, and one we take personally. We invest your money, not simply comment on it from the sidelines, so a change like this matters to us just as much as it does to you.
It’s natural to wonder whether it should change the way you think about your investments. The honest answer is: probably far less than the headlines suggest.
Markets aren’t indifferent to politics. But they don’t sit and wait for a reshuffle, a speech or a leadership contest before deciding what to think. Prices already reflect an enormous weight of information: known facts, likely outcomes, hopes, fears, and the judgement of millions of investors, continuously. When something changes, prices adjust almost immediately. What’s left to guess at, by definition, is only the unpredictable part.
What the evidence shows
The evidence here starts with a simple discipline. The Nobel Prize winning economist Robert Merton put it well:
“If the market is disagreeing with me… that could be that I know things the market doesn’t, but it also could be that the market knows things I don’t.”
History backs this up too. UK shares have risen and fallen under governments of every colour, and over the long run, which party is in office has made surprisingly little difference to how UK-listed companies have performed.
A smaller piece of the picture than it feels
Here’s a piece of the picture that’s easy to forget: the UK stock market is not the UK economy.
More than four fifths of the sales made by the FTSE 100 (the index of Britain’s hundred largest listed companies) come from outside Britain. Even the more domestic FTSE 250, made up of the next two hundred and fifty, still draws close to 55% of its revenue from overseas.
And UK companies, in global terms, are a small part of the picture too. The UK makes up a little over 3% of world stock markets, roughly in line with our share of global output. For a properly diversified portfolio, that puts a change of Prime Minister into useful perspective.
Your plan was built for this
None of this is to say politics doesn’t matter. It’s to say a sensible, long term plan is built to absorb this kind of change without needing to react to it. Stay patient, stay diversified, and trust that markets have already done the hard work of pricing in what’s known. That’s not indifference. It’s discipline.
We’ll keep watching, as we always do, for anything that genuinely changes your plan. For everything else, the plan is doing exactly what it’s meant to.
And if you’d ever like to talk any of it through, we’re always happy to.
Risk warnings
This article is intended for general guidance only and should not be considered financial or investment advice. Any decisions should be made solely in consultation with a qualified and regulated adviser.
Elements of this piece are adapted from research provided by Albion Strategic Consulting. That material is shared for educational purposes only and does not constitute investment advice or the arranging of investments. It reflects the opinion of the original authors at the time of writing, which may change without notice.
Where this article refers to specific market indices or data, this is solely to provide educational insight into the topic discussed. It does not represent due diligence on, or a recommendation of, any product, and should not be construed as such.
The value of investments can fall as well as rise, and past performance is not a guide to future performance.
Wells Gibson is authorised and regulated by the Financial Conduct Authority (Firm Reference Number 731027).
