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What would a Labour government mean for the UK?

May 30, 2024
Paul Jackson
Paul Jackson
Global Head of Asset Allocation Research
Uncommon truths

Welcome to Uncommon Truths, Paul Jackson and Andras Vig’s regular in-depth look at the big topics impacting markets. 

UK elections will be on 4 July and a change of government seems likely. We doubt Labour’s proposals will shake financial markets but the long-term fiscal challenge is enormous, whoever wins.

Prime Minister Rishi Sunak has announced that the UK election will take place on Thursday 4 July and not in the Autumn, as most of us had expected.

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The optimal portfolios are theoretical and not real. We use optimisation processes to guide our allocations around “neutral” and within prescribed policy ranges based on our estimations of expected returns and using historical covariance information. This guides the allocation to global asset groups (equities, government bonds etc.), which is the most important level of decision. For Uncommon Truths, the optimal portfolios are constructed with a one-year horizon. 

We’ve chosen to include equities, bonds (government, corporate investment grade and corporate high-yield), real estate investment trusts (REITs, to represent real estate), commodities and cash, on a global level. We use cross-asset correlations to decide which decisions are the most important. 

Using a covariance matrix, based on monthly local currency total returns for the last five years, we run an optimisation process that maximises the Sharpe Ratio. Another version maximises Return subject to volatility not exceeding that of our Neutral Portfolio. The optimiser is based on the Markowitz model. 

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