A UK general election has long seemed inevitable especially after the resignation of former Conservative leader Theresa May earlier this year. Election legislation approved by MPs on Tuesday was subsequently passed by the House of Lords in quick order. The major parties are now set to campaign towards a December 12 vote. Investors should strap themselves in for what may be one of the most volatile general elections in post-war British history.
The UK is faced with historic levels of political volatility. A recent British Election Study found that 49% of voters switched between parties in the 2017 general election. October polls have shown the Conservatives holding on to a consistent and comfortable double-digit percentage lead, but investors should not take these numbers for granted ahead of this campaign. After all, the Conservatives were expected to romp home in the last election but Labour over-performed projections in the 2017 vote, and Labour leader Jeremy Corbyn has vowed to run an “ambitious and radical” campaign.
So, what is the best way for investors to prepare ahead of this historic event? Today I want to go over two strategies that I’m planning to pursue.
Play defence
This level of political volatility is enough to put me on the defensive. Fortunately, investors have options available if they want to dig in their heels before December 12. Today, my focus is firmly on United Utilities. The utilities sector has proven to be robust during periods of economic turbulence, so that is where I’m turning to protect my portfolio in November.
United Utilities provides essential services, so its business offers protection from political volatility. The shares have climbed 16% year on year. The stock boasted a price-to-earnings ratio of 16 as of close on October 30, which means we are getting solid value. United Utilities also boasts a 4.8% dividend yield.
Go for gold
The spot price of gold has enjoyed a huge run-up in 2019. Gold has thrived in the face of slowing global growth, rising trade tensions, and a dovish turn from central banks across the developed world. The yellow metal moved up again after a third rate cut by the top US central bank on Wednesday. This was one of the reasons I picked a gold miner as my top stock in August.
Fresnillo is the world’s largest producer of silver from ore and the second-largest gold miner operating in Mexico. The shares plunged sharply after the company slashed its production outlook in July. Last week, Fresnillo said that annual gold and silver production would be at the lower end of its target range in the third quarter. Lower ore grades from its Saucito and San Julián silver deposits contributed to the softer numbers, but Fresnillo expects to see higher ore volumes processed in Q4 and improved grades. The company’s development pipeline holds promise. Its next major mine, Juanicipio, is due to be commissioned in the second half of 2020.
The shares are still trading at the lower end of its 52-week range. It has a high P/E of 33, but the uptick in spot prices should translate to improved earnings even in the face of production setbacks.