What to buy for the long term in this politically charged climate

Last week my small — and newly politically engaged — son asked me a question. Can men run countries too, he asked. Of course they can, I said, frantically grasping for an example of political gender equality to offer him in modern Britain, given that we live in Scotland (where all political leaders are women) and that neither Jeremy Corbyn nor Tim Farron seemed to be in with a chance of running anything.

So there is one piece of good news from this election. If Theresa May’s career turns out to be shorter than she expected I might soon be able to show the boy that, with a bit of effort, men can make it to the top too.

The other bit of good news is that the union is now safe. I have been looking for a clip from Question Time last year in which I promised a worried audience member that there would be no second referendum in Scotland. She didn’t look convinced at the time. I think she would be now. The SNP’s share of the vote in Scotland has fallen from 50% to 37%. Nicola Sturgeon can spin that as a triumph as much as she likes. It isn’t. No indyref2.

The next bit of good news is that the election campaign itself and final result make it clear just how uninterested the general population is in the mechanics of Brexit. Journalists care, politicians care and a lot of City people and academics care hysterically. Most other people don’t – which is why this “Brexit election” featured very little conversation about Brexit.

They generally want a reformed relationship with the EU. Some of them hoped to force that from the inside. Some hoped to impose it from the outside. But as long as there isn’t too much drama they can take it either way. Someone explained this to me in the context of a mediocre restaurant. You order the chicken. You get the fish. They both have roughly the same kind of sauce on them. You don’t bother to send it back. You just want to get on with eating.

We will find out more about why people voted as they did over the next few days but an interesting snippet to back up the chicken/fish view comes from Sky Data. Asked what were the most important factors in their vote, 23% of those surveyed said health, 20% said the economy and a mere 14% said our relationship with the EU.

Look at it like that and you can see that the biggest mistakes in this campaign were made by those – Nicola Sturgeon, Nick Clegg and of course Theresa May – who assumed that number would be a lot higher and acted accordingly. That didn’t work out for obvious reasons: if you have already started on the fish you don’t want someone constantly at your elbow badgering you to demand the chicken.

So if our hung parliament isn’t about Brexit, what is it about? I think the same things that Brexit was a symptom of. That means a genuine desire for politicians to take action to deal with all the long term problems facing the UK: high debt, low productivity, low wages, over-powerful corporations, stupidly high house prices, the asset bubbles caused by modern monetary policy and the total lack of a plan to deal with the expenses and practicalities of an ageing population. That sort of thing.

From an investor’s point of view understanding this really matters. I’ve written here before about my expectations of tougher taxes on wealth and a less accommodating regime for large companies. Labour’s rally this month makes all that more, not less likely in the longer term (although in the shorter term the stalemate might bring us some unexpected policy stability).

So in this politically charged climate, how do you invest? This brings me neatly to the question I asked you last week. If you had to buy something now knowing you couldn’t sell it for ten years (think of it as a lock-and-leave asset) what would it be?

I have had more interesting emails from you on this than on any question before. Thank you. The first thing to note is two things that didn’t come up. One, backing up my argument above, was Brexit — the only person who mentioned it as a factor in long-term investment decisions was Irish. And the second was buy-to-let.

This is amazing. At any other point in my career had I asked the lock-and-leave question, I guarantee that more than 50% of the answers would have insisted that the best long-term investment – always, anywhere and forever – would be residential property. Government action on tax relief and stamp duty means you don’t think this any more. No one mentioned it at all.

Instead, your emails show a brilliant recognition of a core point I often make here. New and exciting sectors can disappoint investors if they buy in when they are overpriced and growth doesn’t compensate. Old and dull sectors can thrill if they are bought cheaply and don’t decline as fast as expected.

Some of you are still buyers of tobacco and oil on that basis (Shell is a favourite, given its expansion into renewables – I hold it myself – and Russia crops up in the discussion of oil prices just because it is such a cheap market). Some of you reckon there is still life in the old-school financial sector. The same goes for agriculture: old fashioned farming might not be exciting, but agritech surely is.

You’ve sent several excellent suggestions on the data sector and biotech, personalised medicine and healthcare in general — the latter can hardly go wrong over a decade — with many of you settling on the low-cost Vanguard Health Care Fund.

I’m going to come back to more of your suggestions next week and look at the shifting sands of sector rotation in more detail. In the meantime, there is one default fund out there for all of you feeling wrong-footed by our endless elections and uncertain about the future – RIT Capital Partners. Several of you mention that you hold this global investment trust (as I do) for its hugely diversified portfolio (currencies, hedge funds and individual equities) and its excellent long-term performance. Think of it as the lazy person’s lock-up-and-leave.

This article was first published in the Financial Times

  • FourTuna

    There are a number of Investment Trusts that have been paying increasing divs over many years. City of London for more than forty years now. Might be another lazy one but what’s wrong with that.

    • Andrew Crow

      Four Tuna, you ask ‘what’s wrong with that?. Hmmm…

      Possibly nothing. Possibly everything. Possibly something in between.

      The current fashion for ‘efficient’ investments via tracking funds benefitting from low charges is brilliant for as long as the Bulls keep running. The thing is (as they say) what a tracking fund will do when the market falls is fall with it. Guaranteed – that’s what they do: they track. A whole lot of investors are going to see their ‘safe investments’ wiped out. Those with twenty years to wait will make good again if they don’t jack out in the meantime. Those with a shorter time horizon will be minced.

      I’m not sure that when people refer to the pensions ‘time bomb’ they are even taking this into their reckoning.

      Whether or not City of London trust is thus vulnerable I have no idea. If it was my basket I wouldn’t want all my eggs in it.

      Just in case….

      • FourTuna

        It’s an Investment Trust, not a tracker. Yes, when the next stock market correction crash or correction occurs, these shares will drop too. They did in 2000. they did in 2008/9. But they continued to pay increasing dividends right through these events. So investors that live off their dividend can sit back and wait for prices to recover which they do. You’re obviously one of the “it’s all going to come crashing down” school of thought. You’d better stick where you are then.

  • Too much investment advice revolves around speculating what investments will be better than holding cash or an index fund. Not enough really focuses on what you are investing for. A back-of-the-envelope theory I worked out sees our long term aims being able to afford a place to live (probably that’s sorted if we’re talking about investments), food, fuel and health. So we should buy a farm, an oil well and a care home.

    More practically, invest into assets which hedge against inflation in those areas. What’s the point in a 200% return when food and energy prices go up 300%?

    A health care fund is a good start. I also own energy and metals. Food is harder to hedge against, but I like to think in the UK we needn’t worry too much.

  • Andrew Crow

    I wouldn’t bet on Indyref2 being off the table, Merryn.

    On the back burner, yes, but If I read her right Nicola Sturgeon agrees entirely with Theresa May that ‘Now is not the time’, They may not agree about much else, but even that is not clear because May is playing a very difficult hand with her own party. Pundits can’t even agree whether her desired increased parliamentary margin was to enable her to negotiate for a harder or softer Brexit.

    The time may well be when the Brexit deal or no deal becomes visible. Currently there is no way to guess at the outcome except to conclude that the adversarial nature of negotiations is likely to make it very messy.

    The Three Bodies Problem, and its intractability illustrates the dilemma nicely. Or should I say ‘trilemma’? Scotland’s independence from Europe, via Brexit, or from the UK, via Indyref, are so interrelated that all bets off.

    Observing the major indices over the past twelve months or so suggests to me that ‘the Market’ has no more idea than I do which way the cookies are going to crumble.

    The fundamental investment quandary of the next decade is probably that of guessing whether, ten years hence, our safe haven will be gold or cryptocurrency. And whether that will be by pan-global assent or whether we will see an East/West bifurcation. Those nations and individuals who guess right will have earned quite an advantage.

    • smspf

      One indiref2 or two indiref2s?
      Brexit isn’t settled either.

  • AAJ

    It’s always fun to try and guess where the markets are going in the next 5, 10, 20 years. Personally, I still like residential property (leveraged) as a 20 year investment. Other than that, it’s so difficult to know what the future will be, the only thing I can do is think about what happens when the world gets richer. What do people want? More stuff and more brands that’s what. Depressing but true. So, emerging/frontier markets consumer staples. Can you go wrong with healthcare? Maybe if everyone jumps on the same bandwagon.

    We all have to come back here in 20 years to see what happened.

  • Tim Waterworth

    I’m confused, I have just subscribed to Moneyweek because of a review you offered last week.

    I read an e-mail (11/6/17)from Vinod Gorasia Commercial Director, MoneyWeek. I quote,

    “First off, Merryn’s daily blog. Every morning, our Editor-in-Chief Merryn Somerset Webb brings you insight and commentary on pressing financial issues such as opportunities to invest in Russia, pension reforms, tax efficiency and investing in times of crisis.”

    At the end of the above Blog, it says this article was first published in The Financial Times.

    How does this work, especially when it comes to recommending opportunities to invest, does the FT have this publication before the MoneyWeek daily Blog?

    Just confused.

    • I’m confused too, that sounds like a very old email. Merryn doesn’t write a blog post every day, it’s usually a couple of times a week, though it does vary. She also writes a weekly column for the FT, which we reproduce here. This is an example of that.

      Could you forward a copy of the email from Vinod to editor@moneyweek.com please?

      Thanks, and apologies.

  • Jab

    Recent weeks have been very confused regards moneyweek advice, simply all over the place.