Investors are making a mistake if they are considering changing their portfolio as a result of the upcoming general election, according to star manager Michael Clark, who says that while volatility is bound to increase, any effects of the political uncertainty won’t be long-lasting. 
Like in most other equity markets, 2015 has so far been a very good year for UK investors, because while general macroeconomic fears remain, the FTSE 100 has broken through its record high and is currently trading above the 7,000 level.
This means that the FTSE All Share and the average fund in the IA UK All Companies and IA UK Equity Income sectors are already up close to 10 per cent year to date, according to FE Analytics.
Performance of sectors and index in 2015
Source: FE Analytics
However, a number of leading industry experts have warned that those returns are unlikely to continue given that the UK will go to the polls next month for what is expected to be the most hotly contested general election in a generation.
The likes of Neptune’s Robin Geffen, FE Alpha Manager Bill McQuaker and FE Alpha Manager Luke Newman have all warned that, given a hung parliament is the most likely outcome, investors should expect all UK assets to go through a period of volatility and underperformance as a result of the political uncertainty.
However, Clark – manager of the £1.1bn Fidelity Moneybuilder Dividend fund – says that there has been far too much scaremongering around the election and investors shouldn’t expect any outcome from the vote to be too long lasting.
“It’s true that the upcoming election may cause some volatility in the market, but I don’t see this as a major problem and I don’t see it lasting,” Clark (pictured) said.
A number of FE Trustnet articles have highlighted that politics hasn’t had a material effect on the UK stock market in the past.
While volatility spiked around the actual date of the election, the FTSE All Share has made decent gains in four out of the past five election years. The exception was in 2001, but the FTSE’s losses of 13.29 per cent were largely due to the deflating dotcom bubble and the September Twin Tower terrorist attacks rather than anything to do with Labour’s victory.
Source: FE Analytics
Nevertheless, UK bears say this year is likely to be much different as not only is the market quite highly valued, but as the two major political parties have become far less popular, certain industries have been targeted by the likes of Ed Miliband and David Cameron to capture floating voters.
For example, energy suppliers and banks have become battle-grounds in the pre-election propaganda, but Clark says the effect this rhetoric will have on those companies is likely to be minimal.
“As far as the utilities will go, Labour has said it will introduce a price-cap on domestic energy bills if it wins the election.”
Investors will no doubt remember the falls in Centrica’s share price when Ed Miliband announced his plans for an energy price freeze in late 2013 – but Clark isn’t expecting anything as drastic this time around.
Performance of stock versus index over 3yrs
Source: FE Analytics
“I think it is important to put this in context,” Clark said. “Domestic energy bills have been coming down quite significantly recently because of the falls in oil and gas prices. So I see the urgency of a price-cap as having receded, in many ways, and if it comes through it will have a fairly limited effect.”
“You should also note that within utilities there is an increasing move towards regulated provisions of power through renewables and away from traditional fossil fuel fired generation where the regulation would really bite.”
The manager also says investors shouldn’t fret about the outlook for banks, which have come under pressure from politicians as the likes of Labour plan to reduce their market share.
“My view on banks is that they are potentially and selectively a good source of income. I don’t see them as long-term growth stocks, but as sound dividend payers.”
“My first choice within the sector would be banks that pay a high income. The one I should mention is HSBC, which has the highest income of all. As far as Lloyds and RBS go, I note that the dividends have been restored at Lloyds, which is a good thing, and I would expect those to grow over the next couple of years – but I think we are some way away from the restoration of dividends at RBS.”
Clark’s views seem to be supported by a recent poll conducted by Interactive Investor, which asked investors whether they were making changes to their portfolio ahead of the election.
The results showed that just 20 per cent of the 11,000 who voted said they were making alterations to their holdings while 30 per cent said they will hold fire until after the result and 50 per cent said they would make no changes whatsoever.
Clark has managed his four crown-rated Fidelity Moneybuilder Income fund since July 2008.
According to FE Analytics, it has been a top quartile performer in the IA UK Equity Income sector over that time with returns of 99.71 per cent, beating its FTSE All Share benchmark by more than 15 percentage points.
Performance of fund versus sector and index since Jul 2008
Source: FE Analytics
Due to the manager’s more cautious approach, Fidelity Moneybuilder Dividend has tended to lag in rising markets but come into its own in flat or falling ones. It topped the sector in 2011 with returns of 7.53 per cent, when both the sector and index were in negative territory, and was top decile in 2014’s turbulent conditions.
Politics aside, Clark – whose fund yields 3.66 per cent and has a good history of income growth –firmly believes the outlook is positive for investors in the UK equity income sector.
“The environment for UK equity income investors in the UK is currently very positive. I say this because you all know that yields on corporate and government bonds have come down significantly; in fact, it’s fair to say they have collapsed,” he said.
“However, equity income yields remain in their long-term bands between 2.5 and 4 per cent. Dividends are also secure and you’ve also got potential for capital growth over time. Equity income remains a sound choice.”
This view is backed up by the latest UK Dividend Monitor from Capita Asset Services, which suggests that investors are set to see the strongest dividend growth in 2015 since 2012.
“2015 is off to a flying start for income investors, boding well for the full year. At last we will see strong growth this year, after a disappointing couple of years for dividend growth,” Capita’s Justin Cooper said.
“Yes, the quarter pales in comparison to a year ago at a headline level, when Vodafone paid a world record dividend following its Verizon stake sale. But under the surface, things are clearly picking up pace.”
“At one end of the FTSE, mid cap domestically orientated companies, most sensitive to the UK’s economic growth, are able to increase the returns they are offering shareholders at a dramatic rate. At the other, dollar strength is helping buoy payouts from the UK’s most internationally exposed firms – a stark contrast to last year.”
He added: “And equities have extended their lead over other asset classes in their ability to provide such a good income.”