UK general election highlights why investment diversification is important
The Conservatives have lost their parliamentary majority, in a stunning election reverse that once again made a mockery of the polling industry. Jeremy Corbyn’s Labour Party has made gains. Here we digest what the result means for investors.
Theresa May’s election gamble has backfired. Just six weeks ago it seemed that the Conservative party would sweep all before it, and cruise to a landslide victory. While the Conservatives are still the largest party in the Parliament by some distance, David Cameron’s hard won 2015 election majority has been lost and there must now be serious questions over whether Theresa May is able to carry on as the party leader.
Volatility has returned to sterling, with the pound down roughly 2% against most currencies. But it is still nowhere near the lows of 2017. It’s too early to determine if this is the extent of the decline: financial markets are a fickle beast. Traders may now factor in a ‘softer’ Brexit, which could lead to sterling rebounding, or the right-wing of the Conservative party may flex its muscles and appoint a different leader over the coming weeks then a ‘harder’ Brexit, and further GBP weakness, will be back on the cards. What does seem certain is that currency volatility will persist for some time.
How does this impact IG Smart Portfolios?
Essentially not that much as Smart Portfolios invest globally and are very well diversified.
The Aggressive risk profile has the most exposure to the UK at 15%, of which 12% is in the iShares FTSE 100 ETF. With overseas earnings making up more than 70% of the FTSE 100, a decline in sterling tends to be positive for the UK market. At the time of writing this, the FTSE 100 future is up nearly 0.8%, and other European markets appear untroubled by the result.
What this election has shown is that nothing is certain in politics, and this is a lesson we can take as investors. Putting all your eggs in one basket may well work, but only until it doesn’t. IG Smart Portfolios are designed to be held for the long term, to smooth out volatility and to shelter an investor from adverse market scenarios. We remain confident in our ability to deliver this outcome.