Political stability means good news for the stock market – and with the same man in Number 10 Downing Street today as has been for the last five years, many commentators are calling the General Election result good news for UK equities.
Regardless of the ministerial makeup of the new Conservative Government, the political landscape remains by and large the same. We can take March’s Budget delivered by then Chancellor George Osborne at face value – meaning the planned pension changes, austerity measures and tax bands will hold firm.
And the stock market has responded to the stability as expected; the FTSE 100 is up 2% at the time of writing and the FTSE 250 is up 3%. Investors looking to capitalise on the General Election result should bear in mind that it is not just the equities have responded positively to the outcome.
Sterling has bounced today – having dropped in the run up to the election when political polls suggested a rainbow coalition would be the most likely outcome. Stronger sterling is great for domestically focused stocks and those which import costs, but not so good for exporters and those megacaps who rely on international revenues.
For this reason, the FTSE 250 is a better bet for equity speculators – the FTSE 100 has 70% if its revenues from outside of the UK.
Passive Funds for FTSE 250 Exposure
Tracker funds and ETFs offer the cheapest way to access the FTSE 250 index. Morningstar Passive Fund Analysts highlight the Vanguard FTSE 250 ETF (VMID) for its low cost of just 0.1% a year, and superior tracking ability. For investors who prefer a tracker fund, the HSBC 250 Index, is rated Neutral by our analysts.
“Unlike the Morningstar UK Large-Cap Equity Category, the Morningstar UK Mid-Cap Equity Category offers a limited number of options, both active and passive, for investors to choose from,” said Morningstar’s Hortense Bioy.
“However, this FTSE 250 index fund stands out for its highly competitive fees. With a clean share class at 0.18%, this fund is among the cheapest funds tracking the FTSE 250, including ETFs.”
Beware Hidden Investment Trusts
Even the FTSE 250 is not a pure domestic play however, as Morningstar analyst Kenneth Lamont warns.
“The FTSE 250 index fund is not a pure mid- and small-cap play. Fifteen percent of its holdings consist of UK investment trusts—a mixed bag of strategies and geographic exposures with little or no connection to the UK stock market,” he said.
Instead, he points to passive funds which track the FTSE All Share such as the Silver Rated BlackRock UK Equity Tracker, the L&G UK Index and the Vanguard FTSE U.K. All Share Index.
It is worth bearing in mind that because of the larger number of smaller companies in the FTSE All Share, these funds will be more volatile than those that track the FTSE 250 and FTSE 100.
