Understandably, given the election is now less than seven days away, it has been politics which has dominated this week’s news.
Elsewhere, it hasn’t been a great week for equity investors as the major UK, European, Japanese and US indices are now trading lower than when markets opened on Monday due to varying factors. It’s been even worse for bondholders though.
For example, bund yields have more than doubled this week and many believe that it is due to concerns about higher levels of inflation given that bank lending in Europe has been rising, oil prices have stabilised and US wages are picking up.
As a result, yields on Japanese government bonds, gilts and US treasuries have all spiked leading many to question whether the multi-decade rally in fixed income may finally be coming to an end.
Given that information, and huge amount of comment on the forthcoming election, the FE Trustnet team have been kept busy. With that in mind, here is a selection of our favourite stories of the week.
Have a great bank holiday!
The funds to buy if you’re terrified of a Labour victory
We start off with an election focused article, which came about following news editor Gary Jackson’s chat with FE Alpha Manager Mark Martin.
Until recently, the consensus appeared to be that the general election would ultimately lead to ‘more of the same’, with a hung parliament paving the way for a dominant Conservative Party to form another coalition government with the Liberal Democrats.
However, the likelihood of a Labour-led government, possibly with the Scottish National Party (SNP), appears to be growing. Data from electionforecast.co.uk earlier this week put Labour on 270 seats and the SNP on 48, higher than the coalition with the Tories tipped for 279 seats and the Lib Dems just 27.
Martin said that investors who are concerned by the potential for anti-business policies from a Labour-led government should consider looking at mid-cap funds as he argues that these portfolios are likely to be less exposed to threatened sectors.
“Labour doesn’t seem to be too keen on big business and in both funds we’re overweight mid and small-caps. If you look at where the obvious political footballs are, they are broadly speaking in large-cap companies like utilities and banks,” Martin said.
The manager therefore said that, while mid-caps will be hit by general market volatility, the more domestically focused index is better positioned than its larger counterpart.
Investors who are happy to take on the extra risk of investing in individual stocks may wish to take a look at market analyst Tony Cross’s guide to which companies to keep an eye on if there is a change of government next week.
Why Ruffer thinks your core UK Equity Income fund could crash
In an exclusive interview with FE Alpha Manager Steve Russell, head of FE Trustnet content Josh Ausden started the week with an article on why the team at Ruffer think UK equity income funds could be in for a hard time.
Russell (pictured) says the hunt for yield in light of record low interest rates has bid up the prices of defensive high-yield stocks into bubble territory, meaning that the core funds such as those run by Neil Woodford, Mark Barnett and Adrian Frost could be in for a nasty surprise. 
“We are as fearful as ever,” Russell said. “We are acutely aware that the hunt for yield across all markets has driven prices higher, but it won’t last forever. We don’t know when it will come, but it will.”
“Equity income is an especially dangerous area as it has an aura of safety, but in our opinion in some cases high yield stocks are just as dangerous as a biotech stock given the prices they’ve been bid up to.”
“We have been increasingly moving out of high income stocks which we now view as extremely dangerous, because it seems that many owners of them see them as risk free. It will all end in tears.”
Mobius: Investors have not missed the emerging markets rally
Next is another exclusive, this time Franklin Templeton’s emerging market guru Mark Mobius.
In this article, he told reporter Daniel Lanyon why the recent rally in emerging markets still has legs given that more and more US investors were allocating to the developing world as a result of China’s stimulus and high valuations in their domestic market.
Performance of indices and sector in 2015
Source: FE Analytics
“It is true emerging markets have underperformed developed market these past two years but this year emerging markets have outperformed and a lot of that is China and what is happening China,” he said.
“However, I see this [the rally] continuing because if you look at the valuations of emerging markets now, it is lower than the US market and so there are a lot bargains for internationals investors to buy. That is the reason we are seeing the movement from the US to emerging markets.”
“I think it will continue throughout this year and as Brazil recovers and if the sanctions on Russia are released. Of course India is still going through a revolution of reform under Narendra Modi – this is going to be another aspect that will push the markets higher.”
Record tracker inflows: So where did the money go?
This week, the Investment Association announced that trackers captured their highest ever net retail sales as £938m poured into passively managed funds in March.
The fund management trade body showed that this time last year flows into trackers were £238m. Trackers then accounted for 9.8 per cent of the overall share of the industry’s funds under management but that figure has increased by close to four times, meaning that passively managed funds now represent 11.5 per cent of all the assets in the Investment Association universe.
Therefore, using data from FE Analytics, we looked at the trackers which have taken on the most money.
Source: FE Analytics
As the table above shows, a European fund topped the best-selling list – which is understandable given the bullish sentiment towards the region following the ECB’s vast quantitative easing programme.
Others to feature high up include US, Japanese, corporate bond and inflation-linked bond passives.
Have these UK funds lost their charm or are they due a rebound?
This week we also took a closer look at three UK funds which had once been the stars of their sectors but have since reverted back more in line with their peers after a period of duller returns.
It is the first in a series, and in this one we focused on Standard Life Investments UK Smaller Companies, Investec UK Special Situations and Artemis UK Special Situations.
It must be noted that these funds have all outperformed over the longer term and have by no-means delivered disastrous returns, but their numbers over time frames such as three, five or 10 years now look more average than they once did as a result of their style falling out of favour, growing AUMs or poor stock calls.
Therefore, we asked the experts whether these managers’ more recent slides are part of a longer term trend or whether they are due a rebound.
Top-rated SIPP funds to build an income portfolio in retirement
The latest edition of Trustnet Magazine looked at the new pension reforms that came into force in April, which removed the need to buy an annuity.
The reforms give investors the opportunity to build their own income-generating portfolio – and what better model is there to follow than the one put together by the FE Research team?
Trustnet Direct’s Income Generator aims to provide a regular income without eroding the original capital investment – this article looked at the funds it is made up of and what role they play within the portfolio.