26 Aug Keeping UK politics in perspective
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A change of Prime Minister naturally attracts attention. Britain has seen frequent political turnover in recent years, with Andy Burnham entering office in July as Britain’s seventh prime minister in a decade. A new leader means new ministerial appointments, new priorities and, inevitably, a fresh round of speculation about what it might all mean. On a personal level, some of these policy changes might have material impacts, but when it comes to investment portfolios, the story is quite different.
Investors might reasonably ask whether a new occupant of No. 10 should change the way they think about portfolios. The short answer is: probably far less than headlines might suggest. Markets are not indifferent to politics, but neither do they sit around waiting for a reshuffle, a speech or a leadership contest before forming a view. Financial markets process information continuously. In an informationally efficient market, publicly available information is rapidly incorporated into prices. In essence, fortunately, investors do not need to discern what impact political changes may have on markets; markets are already doing this for them.
That is what markets do. They take the known facts, the range of possible outcomes, the hopes and fears, policy announcements, economic data and the views of millions of investors, and distil them into today’s prices. Prices move when new information arrives, and new information is inherently unpredictable. What is your thesis? How is your view different to everyone else who is thinking similar thoughts? For investors tempted to react, a line from Nobel laureate Prof Robert Merton is worth considering.
‘If the market is disagreeing with me, or doesn’t seem to be aligned with me, that could be that I know things the market doesn’t, but it also could be that the market knows things [I] don’t!’
Prof. Robert Merton
UK shares have risen and fallen under different governments. Over the longer term, the party in power appears to have made limited difference to the performance of publicly listed companies in the UK.
Figure 1: UK stocks 50y performance and UK government & PM in power
Source: Albion Strategic Consulting. Data source: Albion UK Stock Market Index, see smartersuccess.net/indices for more information about the Albion Research Indices, Jul-76 to Jun-26 in GBP. Blue = Conservative, red = Labour, yellow = coalition.
There is another important point that can be easy to forget: the UK stock market is not the UK economy. The main UK index that tracks the 100 largest listed companies is an extremely international one. Over four-fifths of the sales of these companies come from outside the UK. The more domestically focused index of 250 medium-sized companies still has overseas sales close to 55%[1]. The fortunes of many UK-listed companies are shaped by global phenomena, not just by activity at Westminster (or perhaps now somewhere further north!).
A key pillar of sensible investing is to understand that diversification is a powerful tool. Diversification across stocks, sectors and countries makes good sense. In global stock markets, the market capitalisation of UK companies makes up little more than 3% of the world, and the UK’s GDP (output) is around the same level. For most investors, the UK therefore represents only a small part of a globally diversified portfolio.
Despite the financial media regularly reporting on the movement of the ‘footsie’, it is of limited consequence to your investment returns.
Investors can take the simple and, in our view, robust path to pursue good investing outcomes: remain patient, stay diversified, trust that market prices already reflect the collective view of investors, and allow capitalism to do its long-term work. Equity investors are part owners of companies. Bond investors are lenders. The rewards from both come from bearing risk sensibly over time, rather than speculating on outcomes.
The principles of good investing remain remarkably constant. Investors should keep politics in perspective.
With investing, your capital is at risk. Opinions constitute our judgement as of this date and are subject to change without warning.
Important notice: This marketing communication is for information purposes only. Unless indicated, all views expressed in this document are those of the author(s). The information in this document does not constitute advice or a recommendation and you should not make any investment decisions on the basis of it.
[1] LSEG (March 2024), ‘The UK’s very global country index’. The UK’s very global country index | LSEG accessed 6 Aug 2026.