Want To Trade U.K. Elections? Smaller Stocks Worked In The Past
By Roxana Zega
For big returns, buy smaller companies — that?s the takeaway from previous U.K. elections.
The FTSE 250 Index rallied almost 18 percent on average in the 12 months following a general election, according to data since the 1987 vote. That?s more than twice as much as its annualized returns and double the advance of the FTSE 100 Index, which follows the biggest stocks in the market.
The mid-cap gauge tracking companies such as Provident Financial Plc and betting firm William Hill Plc has usually beaten the FTSE 100, but its outperformance is particularly great in years following a general election. That?s because policies implemented by new governments benefit companies whose revenue come mostly from the U.K., according to Peter Garnry, Saxo Bank A/S?s head of equity strategy.
?Post an election, there are more benefits thrown around for domestic-oriented companies than the international ones dominating FTSE 100,? Garnry said. ?If you?re betting on the U.K. economy, go for the FTSE 250.?
Provident Financial, one of the biggest components of the FTSE 250, gets all of its revenue from the U.K. and Ireland, while William Hill generates 82 percent in Britain. That contrasts with companies in the FTSE 100, whose two largest stocks — HSBC Holdings Plc and BP Plc — receive at least two-thirds of their sales from abroad.