Gains in the polls made by the Labour Party in recent weeks have raised again the prospect of a victory for the party at the next general election. However, the prospect of a Jeremy Corbyn-led government has raised serious concerns for investors given the left-wing nature of many of his beliefs. 
The failure by Theresa May’s Conservative government to negotiate a Brexit deal appealing to both ‘Remain’ and ‘Leave’ camps has undermined its credibility, while uncertainty over the UK’s future has led to a challenging economic backdrop.
With little clarity in sight despite a new extension of the Article 50 process to 31 October, the prospect of either a new referendum or a general election is becoming increasingly likely.
As such, recent data from pollster YouGov has suggested that while both parties have lost support in recent months, the Conservative Party’s lead has narrowed significantly.
Source: YouGov
And while the prospect of a Corbyn-led government has, so far, been enough to keep voters backing the Conservatives, the likelihood of a Labour victory has increased.
With this in mind, there are several issues that investors should consider in the event that a Labour government comes to power.
“The market would almost certainly fall if Corbyn comes to power,” said Ian Forrest, investment analyst at The Share Centre. “Even when the election is called, the possibility of a Labour government emerging would be likely to spook the market.
“The first big moment would be the publishing of the manifesto, although it is unlikely to be significantly different from current party policy.”
While politicians often fail to deliver on manifesto pledges, said fellow investment analyst Graham Spooner, Corbyn and shadow chancellor John McDonnell remain an unknown quantity.
“There’s often quite a big difference between what opposition politicians claim they will do in office, and the subsequent reality, but in this case we have never had a prime minister or chancellor with such extreme left-wing policies as those of Corbyn/McDonnell, and that makes the market very nervous,” added Forrest.
“However, it’s not certain Corbyn/McDonnell would actually try to execute all of their policies straight away, they might encounter some resistance from their own backbenchers.
“If the election doesn’t occur until the scheduled date of June 2022 that resistance will likely be less, as more of the troublesome MPs may have been deselected by then.”
Forrest said there are several reasons that the market would fall should a Labour Party be returned at the next election. These reasons include fears that GDP would shrink and that tax increases and a potential rise in unemployment would lead to less disposable income.
Industries that would be most heavily hit by a Corbyn government would include utilities, defence, rail/bus, financials and property, according to The Share Centre.
“It would be quite hard for investors to Corbyn-proof their portfolio completely,” said Forrest. “But I would suggest focusing on larger, defensive groups with significant overseas earnings and high levels of cash. Funds focused on a mixture of overseas investments would also be a preference.”
With this in mind, Forrest said there are several funds that might be able appropriate for investors should the Labour Party come to power.
The first fund recommended by Forrest is the £5.6bn Artemis Income fund – a UK equity income strategy overseen by veteran investor Adrian Frost along with colleagues Nick Shenton and Andy Marsh – which targets a rising level of income with capital growth.
Frost, Shenton and Marsh focus on companies with a competitive advantage in sectors with considerable barriers to entry and that create value sustainably, which includes many large-cap, internationally focused names.
“The investment discipline is based on cash flow yield which should be attractive and sustainable,” said Fisher. “The managers will also contemplate acting if they see a short-term opportunity where a company’s cashflows are clearly being mispriced.”
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
Over the past three years, the Artemis Income fund has made a total return of 28.98 per cent while the FTSE All Share benchmark is up by 33.83 per cent and its average IA UK Equity Income peer has returned 22.24 per cent. The fund has a yield of 4.19 per cent and ongoing charges figure (OCF) of 0.8 per cent.
Forrest’s next choice is the closed-ended RIT Capital Partners, one of the largest investment trusts with net assets valued at £2.9bn. The trust is internally managed and chaired by Lord Jacob Rothschild, whose family are the largest shareholders.
The trust invests in a diversified portfolio of international assets including equities, absolute return, credit, direct investments and real assets.
“In more volatile and uncertain times this trust is appealing for more cautious investors looking to preserve capital,” The Share Centre analyst explained.
As such just 5 per cent of net asset value exposed to the UK – albeit with a 51 per cent currency exposure to sterling.
Over the past three years the trust has made a total return of 31.92 per cent compared with a 28.70 per cent gain for the average IT Flexible Investment peer.
RIT Capital Partners is currently trading at a premium to net asset value (NAV) of 8.9 per cent, is 18 per cent geared and has ongoing charges of 0.68 per cent.
The last ‘Corbyn-proof’ fund for investors is the four FE Crown-rated Standard Life Global Smaller Companies fund, managed by Alan Rowsell.
Forrest said the fund uses a very similar strategy to the longstanding and successful sister fund – Standard Life Investments UK Smaller Companies run by FE Alpha Manager Harry Nimmo – which makes use of the firm’s Matrix proprietary quantitative screening tool.
Ultimately, Rowsell aims to identify tomorrow’s large-caps, hunting for companies with proven business models and the ability to generate growth.
The high conviction Standard Life Global Smaller Companies fund typically holds 40-80 stocks and is diversified across regions.
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
“Investors need to be aware that investing in smaller companies is more risky than investing in larger ones and smaller companies tend to be less liquid which means there is potential for the share price to fall should investors wish to sell their investments,” added Forrest.
The fund has made a total return of 65.38 per cent compared with a gain of 46.35 per cent for the average IA Global peer. It has an OCF of 1.05 per cent.