By Sam Antrobus of Citywire
The times they are a changing, so the famous Bob Dylan lyric goes. But for investors running the rule over today’s stormy market environment, they could be forgiven for hoping the status quo remains the same for the foreseeable future.
Political change has a habit of stirring markets and in an increasingly volatile world, investors have had plenty to mull over in recent times.
Barely 12 months after – what was at the time – a 2015 UK general election that was too close to call, markets were then faced with further uncertainty in the form of the UK referendum on its membership of the European Union (EU).
Given that the future relationship between the UK and the EU is still far from clear, investors still have a wide range of factors to consider moving forward. Yet with two very different visions of the United States on offer in the forthcoming Presidential election next month and a raft of European general elections also drawing closer, markets appear to be facing a barrage of potential headaches.
Or are they?
For Adam Avigdori, co-manager of the BlackRock UK Income fund, the potential impact of elections on markets over the next month and beyond should not be underestimated. But with the political conveyor belt of risk operating year-in, year-out, he sees more wisdom in blocking out the speculative noise rather than listening to it.
‘So we have the US election in November, closely followed by the Italian election in December and next year’s French elections coming sharper into focus,’ he says.
‘If you try to react to individual events such as these votes, you would just end up changing your portfolio repeatedly. Ultimately, what we’re trying to really focus on is companies that have extremely strong independent and individual characteristics.’
While the sheer frequency of elections and political upheaval makes it difficult for investors to cater to each one, Avigdori believes there is a more important factor at play. In his view, speculation around elections should not mean markets lose sight of fundamental factors – suggesting that staying focused is key in the current macro climate.
‘Really, you’ve got to try and find those micro-climates of growth and that means finding companies that have good products and services, pricing power, great management teams and strong balance sheet,’ he says.
‘You’re looking for businesses to fund their own growth and grow despite the challenges that we see in both the domestic and global economy.’
The old adage suggests that markets are not particularly fond of uncertainty. And in a global macro environment that has seen markets induced in a seemingly never-ending wave of volatility, investors could be forgiven for worrying about the unsettling impact of the upcoming elections.
In Avidgori’s view, however, uncertainty isn’t always a bad thing.
‘The US election is likely to present a period of volatility in the same way that Brexit did and I’m sure that we will see many more periods of volatility as we move through the next three to five years,’ he explains.
‘But what we will try and do is take those moments of volatility and use them to our advantage – that means buying companies that we think have stronger long-term prospects than what the market is currently discounting.’
‘The fund is really focused around stocks and stock specific factors. We’re really trying to move away from some of the macro market influences and zone in on the fundamentals – essentially looking at the free cash flow of the companies that we invest in,’ he says.
‘We want companies that have their destiny in their own hands.’
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