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Poll performance

Today is Election Day. I hope it goes well for you. Speaking personally, I am glad to be sheltering a few thousand miles offshore from the most highly orchestrated election campaign I have ever known.

I did, of course, cast my vote before leaving for warmer climes and I will, I suppose, miss the thrill of watching the results come in and gauging
the momentum of that famous swing-o-meter. But this election has been hard to judge and the result difficult to plan for.

The first election in which I felt properly involved was in 1974. As it happens, there were two that year. The first Edward Heath lost – the second Harold Wilson won. Neither result was that easy to predict. Nor was it easy to predict what the market was likely to do either.

Since I started in the investment business, there have been 12 general elections in this country. The first was in 1964 but I was too young to
vote then (you had to be 21 in those days to cast your ballot) and anyway I had other things on my mind than who might run the country best.

As it happens, Harold Wilson wrested control from Sir Alec Douglas-Home that year and Labour returned to power after a gap of 13 years.

The following year the Financial Times, in collab – oration with the Institute of Actuaries, launched a new benchmark index – the FTA All Share. Probably the best overall measure of what the UK market is doing, I find the total return version a valuable tool when endeavouring to
demonstrate the performance characteristics of equities. Singling out those years in which an election took place is surprisingly illuminating.

Of the 44 years for which a full 12 months’ performance can be calculated, there was a negative total return in 11 of them, meaning that investors stood a 75 per cent chance of coming out on top on average.

For the 10 years in which an election took place (which happened to be the 11 elections in which I voted – there were two in 1974), four delivered a negative total return, reducing your chance of making money overall to 60 per cent.

While I admit that a fall from 75 per cent to 60 per cent is not huge, you could argue that the statistics are skewed by the 1980s and 90s. In the
20-year period to 1999, there were just two negative total return years but this was a period of high inflation at the outset and one where reason increasingly went out of the window as managers bet the farm on a bull market continuing that had lasted a generation, driven by low inflation and interest rates.

The 1966, 1970 and 1974 election years saw falls of 4.2 per cent, 3.4 per cent and 51.7 per cent respectively.

In 2001, the market fell by 13.2 per cent, even after allowing for reinvested dividends. True, 1983, 1992, 1997 and 2005 saw returns of more than 20 per cent in each case but I cannot help but wonder what the final outcome for 2010 might be. The last time we had a hung Parliament as a result of the poll itself was 1974, the worstperforming year of all.

I am hardly likely to build an investment strategy on the basis of what might or might not happen, given we will all know soon enough, but it is
food for thought. Anyway, there is enough uncertainty elsewhere at present, what with the Greece and Portugal downgrades and a weak euro.

Could this be the May to sell and go away?

Brian Tora (brian.tora@centaur.co.uk) is principal of the Tora Partnership

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