Which investment trusts to hold during the UK election campaign?

Broker Stifel has outlined a number of investment trusts that will play the currency market variable during the “unusual” UK election campaign in the coming weeks.

Prime Minister Theresa May announced a snap election in a surprise statement yesterday. The general election will be held on 8 June.

In a report published today, Stifel’s analysts Iain Scouller and Maarten Freerik say the most important thing to consider in the election campaign is the movements of sterling, suggesting a potential strengthening of the currency following its significant drop during 2016.

A poll run by YouGov published last Sunday showed that the Conservatives have a 21-point lead over Labour with a 44 per cent vote share compared to 23 per cent.

The Stifel report says: “With seven weeks to go until polling day, one thing we can be pretty certain of is that the opinion polls national percentage share of the vote figures and seat predictions are likely to be wrong. During the twists and turns of the campaign, an important variable impacting the fund sector will be the currency markets.”

Over 2016, which saw a weaker from the weeks before the EU referendum in June, equity funds invested globally saw net asset value returns of 20 per cent to 40 per cent.

Among the international trusts most exposed to foreign exchange volatility, the report cites RIT Capital, which in 2016 had a +12.1 per cent NAV total return because of sterling weakness, including a currency gain of +9.6 per cent.

The analysts also suggest infrastructure and renewable energy funds which usually provide returns with lower correlation to equities. As most of these trusts don’t have many sterling assets, the weakness in sterling helped some of them outperform last year.

For example, sterling weakness last year added around 10 per cent to BBGI SICAV’s NAV as of the end of last year.