Fund managers are obsessed with politics, but most are aware that they need to stand back and be objective to manage their funds successfully.
The investment manager’s day starts with reading the news. To get to the business pages you inevitably cast your eye over the political headlines.
Bond fund managers anticipate central bank actions, which may not always be as independent of politics as they claim.
Equity fund managers have views on the economic cycle, inflation and economic growth and comment on politicians’ attempts to influence these factors.
The vast bulk of the time, none of this commentary helps you run a successful fund, nor does it affect which companies do better or worse. Your political predictions can be spot on without them helping you pick winning investments or avoid losers. There are, however, a few exceptions.
Global equities in 2024
Global equity managers keep an eye on political change across the investable world.
This year was always going to be busy with elections in India, the US, Europe, the UK, and now France and Belgium. And Singapore, South Africa, Pakistan and not to forget Russia.
Ahead of these elections, equity investors try to note major policy changes that are likely to affect stocks.
There are a small number of sectors that are especially politically sensitive.
Energy policy has always been highly political. In the past, governments have decided overall energy structure: France relying on nuclear, Germany turning off nuclear. Capital markets have little role in these decisions.
Oil shocks have produced the largest inflation scares for markets in the early 1970s and more recently at the outbreak of the Ukraine war.
And in recent years, energy policy has broadened to include climate change priorities. Policy now extends into housing policy, the automotive and transport sectors and renewable energy stocks.
The political tides encouraging private sector investment in this area seem now to be running against them. The higher share of European parliament seats held by right-wing parties will doubtless slow net-zero commitments. Equity prices have been falling well ahead of this event.
The poster child of renewable energy investments, Orsted, the Danish wind-farm operator, has seen its share price fall by 60 percent since 2021. National Grid in the UK recently cut its dividend in order to invest more in decarbonising the grid – leading to a 10 percent share price fall.
Some would say these share price movements are due to political changes, some would point out that Orsted was due a fall (its shares, at peak, trading on more than 50x earnings) and environmental, social and governance investing having been very heavily promoted by some fund managers created something of a stampede towards that particular equity, in such situations, it does not take much for a reversal of sentiment to occur.
