Make money from next month’s Election – even if that wealth-hating Marxist Jeremy Corbyn wins

Stock markets famously hate uncertainty – and what could be more uncertain than the General Election looming on December 12?

Any number of results appear possible, ranging from a clear Conservative majority, to a hung Parliament with the Tories as the largest party, to a hung Parliament with no clear winner, to a government led by Labour’s Jeremy Corbyn.

The safest bet for the next few weeks is that we will see some share price indigestion over November and early December, with the erratic buying and selling of stocks by traders.

But amid the uncertainty, General Elections can also provide opportunities for investors to find bargains before the markets regain their confidence, or to reshuffle their portfolios to fit the political result they expect to see emerge after polling day.

The Mail on Sunday guides you through what could happen to your nest egg under the three most likely outcomes of the vote – and how you can prepare now.

CONSERVATIVES WIN: MARKETS SURGE

If the Tories defeat Labour it could trigger a big rally in various corners of the stock market as investors breathe a sigh of relief.

Jeremy Corbyn has consistently threatened to renationalise key industries from rail and water to energy and the Royal Mail.

Longstanding fears that Corbyn might succeed at the polls have dampened the share prices of numerous electricity, gas and water providers and have also fed through to certain investment trusts.

Some of these stock market-listed funds are exposed to public sector projects currently delivered by private firms. Others invest directly in infrastructure projects or utilities.

Laura Suter, of broker AJ Bell, says: ‘Removing the threat of a Labour government could make utilities more appealing to investors – who also might be tempted by the sector’s tendency to offer more generous dividends.

‘By extension, infrastructure-related investment trusts could trade at share prices higher than the value of their underlying assets, as investors may feel comfortable paying more to access a stream of dividends supported by long-term cash flows.’

Investment trusts HICL Infrastructure and International Public Partnerships are examples of the funds exposed to projects that could be hit by Labour’s plans. So a defeat for Corbyn could see their share prices rally in relief.

A Conservative majority would likely give sterling a much needed fillip and, by association, give a lift to UK firms whose sales are focused on the domestic market – particularly those on the FTSE 250 index. This is where companies such as kitchens and hardware firm Howdens Joinery and broadband to mobile company TalkTalk Telecom are listed.

Suter says: ‘UK investors have been fearful of investing in their home market – they’ve sold more than £14 billion of UK equity funds since the 2016 referendum.

‘Anyone who thinks a Conservative win will mean Brexit will pan out better than markets expect might consider putting money into UK stocks and funds.’

Jason Hollands, of wealth manager Tilney, would expect global investors to fall back in love with the UK again. He says: ‘UK shares are a bit of a bargain.’

Beneficiaries of a bounce could be funds that have a preference for holdings in so-called value shares. These are companies where the share prices do not reflect the true strength of the businesses and therefore should prosper in the longer term. Funds specialising in medium and smaller-sized companies as well as larger companies should do well. Hollands points to Fidelity Special Situations and JO Hambro UK Dynamic as examples.

Experts also suggest Merian Smaller Companies, TB Amati UK Smaller Companies Fund, Henderson Smaller Companies Investment Trust, Jupiter UK Special Situations and Man GLG Undervalued Assets fund. By contrast, Rebecca O’Keeffe, of broker Interactive Investor, says the FTSE 100 Index may become less appealing to investors if the pound soars.

This is the index where the UK’s biggest companies are listed. Many of these firms make their money abroad in foreign currencies.

So if sterling rises, their incomes would be worth less when converted back into pounds, hitting profits.

Investors who are confident that the pound is poised for a rebound could buy investments that mimic the price of sterling itself.

Suter says: ‘This can be achieved by buying an exchange-traded fund (ETF) that tracks sterling versus another currency, such as the US dollar. If the pound strengthens versus the dollar then it goes up – and vice versa.’ An example is the Invesco CurrencyShares British Pound Sterling Trust.

HUNG PARLIAMENT: SHARES IN A SPIN

A hung Parliament of whatever shape could put markets in a spin and cause problems for the pound. Tilney’s Hollands says: ‘Yet another hung Parliament would be regarded as a disastrous outcome by the markets, heralding another chapter of uncertainty and squabbling.

‘Sterling would likely fall. In that scenario, you might be better off with money invested in international businesses whose earnings are made abroad in other currencies.’

Fund options he suggests fit this bill include Fundsmith Equity or TB Evenlode Global Income.

Among the stocks likely to land in the doldrums under this outcome are banks and housebuilders. AJ Bell’s Suter says: ‘These sectors are often seen as proxies for the UK economy and barometers for Brexit.’

Interactive Investor’s O’Keeffe believes all the uncertainty in the event of a hung Parliament would leave limited options for UK investors.

She says: ‘It might be worth looking to F&C Investment Trust for its global, diversified approach. With a track record stretching back over 150 years, it has weathered its share of crises and served shareholders well for decades.

‘For investors sticking to the UK, the City of London Investment Trust has been able to increase its dividend each year for over 50 years, and whilst these can’t be guaranteed, the stunning track record may give some comfort.’

LABOUR WINS: THE ‘NUCLEAR’ OPTION

If Marxist Jeremy Corbyn grabbed the keys to Downing Street, there would be severe turbulence afoot for companies.

Labour’s promises to hand over some company shares to staff, introduce new taxes on investing and renationalise certain industries could spark chaos on the markets.

Tilney’s Hollands says: ‘A working majority for Corbyn would be the worst outcome by far for shares, triggering the twin prospect of a socialist economic agenda and a Brexit policy that involved going back to the negotiating table for months to secure yet another deal followed by the uncertainty of a second referendum.

‘The outcome would be bad news for UK equity funds and bonds (because borrowing costs would likely rise), and for property funds and infrastructure funds given Labour’s pledge to cancel contracts.’

Laura Suter, at AJ Bell, says: ‘Labour’s suggestion of a new financial transaction tax would make the cost of buying shares and bonds more expensive. Plans to nationalise Royal Mail, water and energy companies and Royal Bank of Scotland could mean existing investors in these businesses lose out if the shares aren’t purchased at market rate. A proposal for companies with more than 250 employees to hand staff 10 per cent of the firm’s shares could be popular with employees, but would cost investors.’

Richard Hunter, head of markets at Interactive Investor, says that a Labour victory would be considered a ‘nuclear’ result for the stock market. He says: ‘Stocks would be marked down across the board.’

To guard against the worst, investors could consider choosing so-called defensive stocks.

He says: ‘These are companies that make stuff we’ll keep on buying come what may. Think Unilever, which sells big brands such as Persil and Dove soap or Reckitt Benckiser, maker of Dettol and – perhaps appropriately with the current uncertainty – Nurofen and Gaviscon.’

His colleague O’Keeffe suggests investors could opt for gold as a safe haven. She says: ‘One option is iShares Physical Gold, a passive Exchange Traded Fund that should benefit handsomely in such an unlikely scenario.’