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Too much politics

Jonathan Wright, Fidelity Personal Investing, 21 April 2017

“There’s too much politics going on at the moment” said Brenda from Bristol this week when asked her view on the snap election in a BBC interview. Her response has gone viral and made her a social media star overnight. With seven weeks of election campaigning beginning in earnest this weekend, you may share Brenda’s view.

Of course, we’re not the only electorate preparing to go to the polls. The first round of the French presidential elections takes place this weekend, with French voters facing a choice of 11 candidates. The French may also be sharing Brenda’s view. Then it’s Germany’s turn in September.

For investors, elections mean uncertainty. And, as we’re often reminded, markets don’t like uncertainty. If there’s one thing we’ve learned from the 2015 election, the EU referendum and more recently the US presidential election, opinion polls need to be treated with caution.

So outside of politics how is the world looking economically at the moment? According to the International Monetary Fund (IMF), the world economy seems to be gaining momentum. In the IMF’s World Economic Outlook published this week, the report forecasts global growth of 3.5% this year which is up from 3.1% predicted in 2016.

Closer to home, the IMF forecasts the UK’s economy to expand by 2% this year, which is stronger growth than in any of the major developed economies apart from the US. This forecast is now only slightly below what the IMF predicted a year ago for the UK before the outcome of the Brexit referendum was known.

While commentators have noticed the tone of the report is more positive than it has been since the financial crisis of 2008, the IMF also warns of headwinds that could weaken its global projections.

One such risk they refer to is “pressures for inward looking policies in the advanced economies”. The report also points out the loss of what it calls middle-skilled jobs in advanced economies as a result of the technological change since the early 1990s. Both these themes could trigger more protectionist policy actions on trade and immigration.

Here we go, back to politics.

So what can we do to prepare ourselves for the times ahead? A good starting point is to read Tom Stevenson’s latest quarterly Investment Outlook. The April issue was published last week with a live and interactive Q&A webcast where Tom shares his outlook for the next 12 months, breaking down his view on each key asset class and region.

As ever, in times of market uncertainty, a balanced portfolio is a smart way to be prepared for any eventuality. Investing in funds, across a range of different markets and asset classes, makes this easier and if the fund is actively managed - rather than just tracking an index - you can leave the difficult choices to the experts.

With uncertainty can come opportunity. For those looking to take a global approach, the Rathbone Global Opportunities Fund seeks long term capital growth through a concentrated mix of 60 stocks handpicked for their growth potential.

The Fidelity Enhanced Income Fund looks closer to home and invests in large UK companies with dependable dividends and uses derivatives to provide an enhanced income beyond what is offered by the FTSE All-Share Index.

Or for a more diversified approach, investing across different assets such as equities, bonds and property is another option. The Aviva Investors Multi-Strategy Target Return Fund seeks to do this and has a simple objective to provide investors with a consistent stable return without taking too much risk.

Finally, when markets become choppy, safe havens such as gold come to the fore. The Investec Global Gold Fund invests in gold mining companies ready to take advantage of any rise in the gold price.

All these funds feature on our Select 50 list of recommended funds.

Winston Churchill famously said “the best argument against democracy is a five-minute conversation with the average voter.” If we include the Scottish and EU referendum this will be the fourth big vote in four years. I guess this is democracy in action. As voters we should at least be getting used to it and as investors we can make sure that we are well prepared, “too much politics” or not.

Important information

The value of investments and the income from them can go down as well as up, so you may not get back what you invest. The Select 50 is not a recommendation to buy or sell a fund. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. Fidelity Personal Investing does not give personal recommendations. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.

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