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What the hell happens next? Your post-election questions answered

As we head into election day, the polls are still neck-and-neck – meaning that neither Labour nor the Tory party is likely to be able to form a majority government. So, what happens now?

It looks like none of the parties will win outright. This is uncharted territory!

Not true. The outcome is no excuse for politicians and civil servants to claim that the UK is “unaccustomed” to hung parliaments. Of the 20 Westminster governments formed in the 20th century, five were coalitions and five were minority governments. And, of course, the parties muddled through a hung parliament in 2010.

If no one achieves a majority, who wins?

The party whose leader can command the “confidence” of the House of Commons – which basically means securing enough support from the smaller parties to form a viable government. It’s a common misconception that the leader of the party with the most seats automatically becomes prime minister.

But won’t David Cameron get first dibs at making a deal, as the incumbent?

There is no such convention. The Prime Minister will remain in Downing Street until it becomes clear who can lead the next administration, but making deals and speaking to the smaller parties will be a free-for-all. And neither is it the case that the party to win the most seats has the first shot at forming a government, or that the smaller parties are obliged to speak to that party before any others.

So if Labour or the Tories think they can form a workable government, what will it look like?

We could see another formal coalition, like the one we have now – though there is less appetite for that this time, and the Lib Dems are unlikely to win enough seats to rule alongside either the Tories or Labour with a majority. A confidence-and-supply arrangement (where a smaller party backs government bills on a case-by-case basis) is another possible form of partnership. A minority government ruling alone is looking increasingly likely, though it is generally seen as undesirable. We could even see a minority coalition, as New Zealand did between 1999 and 2008. All of these are dependent on the electoral arithmetic and each of the parties’ “red lines” for negotiating a deal.

Who’s running the country during these deals?

The “caretaker convention” allows government ministers to remain in place, though little official business can be done. Cameron would stay in office, signing off initiatives and stopping ongoing agreements from lapsing, but there would be no new policies, contracts or public announcements. The civil service would remain in the more exotically named “purdah”, operating under specific professional restrictions on conducting government business.

How will the new government test itself to see if it works?

It is for the parties themselves to determine who among them is best placed to govern. Once they settle on which party is most likely to be able to govern, its leader goes to the Queen to be appointed prime minister. But the first real test is the Queen’s Speech. This is when the new government puts its legislative programme to a vote in the Commons. It is currently scheduled for 27 May.

What if they haven’t decided by then?

If there is still deadlock by 27 May then the Queen will want to stay out of it, and the Leader of the House of Lords (Baroness Stowell) will make the speech instead. One of the parties will have to dare to give things a go. If its Queen’s Speech fell, it would almost certainly face an immediate no-confidence vote.

And if it lost the no-confidence vote?

Then the leader would be compelled to resign as prime minister and advise the Queen to invite the opposition to attempt to form a government. If an alternative administration isn't formed within 14 days, there would have to be a second general election.

How likely is a second election?

If the electoral arithmetic is irredeemably hung, we could end up with a second election this year. But it is unlikely, thanks to the Fixed-term Parliaments Act 2011. Support from at least two-thirds of the House of Commons would be needed for a motion calling for an early election. Or a majority would be required to pass a vote of no-confidence. It would be very difficult for a minority government to engineer either scenario, or to repeal the Act.

Does the Queen step in at any point to help to decide who governs?

No, not at all. The Queen’s private secretary will be in contact with Downing Street and will keep her updated, but she will be in Windsor and unreachable by politicians.


Anoosh Chakelian is deputy web editor at the New Statesman.

This article first appeared in the 06 May 2015 issue of the New Statesman, The Power Struggle

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Artemis Monthly Distribution Fund: opportunities in volatile markets...

The Artemis Monthly Distribution Fund is a straightforward portfolio that combines bonds and global equities with the aim to deliver a regular income. It is run by James Foster and Jacob de Tusch-Lec. James also manages the Artemis Strategic Bond Fund whilst Jacob also manages the Artemis Global Income Fund. Whilst past performance is not a guide to the future, the Monthly Distribution Fund has returned 76.7%* since launch in 2012. Its current yield is 3.9%. It is also the top performing fund in its sector.*

Political uncertainty and the actions of central banks continue to create market volatility. In this article, James Foster talks about the opportunities this has provided and which areas of the market he considers most attractive.


The approach of the European Central Bank (ECB) has been both broad and radical. The increase to its quantitative easing (QE) programme has helped to push the yields on an even wider range of government bonds into negative territory. The cheap financing it offered to banks was less expected. To date, however, it has done little to ease fears that European banks are in trouble. The performance of bank shares across Europe (including the UK) has been abominable. Returns from their bonds, however, have been more mixed.

Bonds issued by banks and insurers are an important part of the portfolio. We increased our positions here in February but reduced them subsequently, particularly after the UK’s referendum on the EU in June. Our insurance positions have increased in importance. New Europe-wide solvency rules were introduced at the beginning of the year. They make comparisons easier and give us more comfort about the creditworthiness of these companies.

As part of its QE programme, the ECB announced that it would start buying corporate bonds with the aim of reducing borrowing costs for investment-grade companies. After months of preparation, the purchases began in June. The mere prospect of the ECB buying corporate bonds proved as significant as the reality. The implications, however, could be even more profound than they initially appear. Bonds of any investment-grade issuer with a European subsidiary are eligible.

Moreover, the ECB has changed the entire investment background for bonds. Companies are more likely to do their utmost to retain their investment-grade ratings. The financial benefits are so great that they will cut their dividends, issue equity and sell assets to reduce their borrowings. We have already seen RWE in Germany and Centrica in the UK undertaking precisely these policies.

High-yield companies, meanwhile, will do their utmost to obtain investment-grade ratings and could also lower their dividends or raise equity to do so. This creates a very supportive backdrop to the fund’s bonds in the BBB to BB range, which comprise around 28% of the portfolio.

The backdrop for higher-yielding bonds – those with a credit rating of BB and below – has also been volatile. Sentiment in the first quarter of 2016 was weak and deteriorated as the risk of recession in Europe increased. These types of bonds react very poorly to any threat of rising default rates. With sentiment weak in February and March, they struggled. However, the generosity of the ECB and stronger economic growth readings helped to improve sentiment. Default rates are higher than they were, but only in the energy sector and areas related to it.

We felt the doom was overdone and used the opportunity to increase our energy related bonds. Admittedly, our focus was on better quality companies such as Total, the French oil company. But we also increased positions in electricity producers such as EDF, RWE and Centrica. In a related move, we further increased the fund’s exposure to commodity companies. All of these moves proved beneficial.

One important area for the fund is the hybrid market. These bonds are perpetual but come with call options, dates at which the issuer has the option to repay at par. They have technical quirks so they do not become a default instrument. In other words, if they don’t pay a coupon it rolls over to the following year without triggering a default. In practice, if the situation is that dire, we have made a serious mistake in buying them. These hybrids have been good investments for us. Their technical idiosyncrasies mean some investors remain wary of these bonds. We believe this concern is misplaced. For as long as the underlying company is generating solid cashflows then its bonds will perform and, most importantly, provide a healthy income, which is our priority.


In equities, our response to the volatility – and to the political and economic uncertainties facing the markets– has been measured. We have been appraising our holdings and the wider market as rationally as possible. And in some cases, the sell off prompted by the Brexit vote appeared to be more about sentiment than fundamentals. We will not run away from assets that are too cheap and whose prospects remain good. We retain, for example, our Italian TV and telecoms ‘tower’ companies – EI Towers and Rai Way. Their revenues are predictable and their dividends attractive. And we have been adding to some of our European holdings, albeit selectively. We have, for example, been adding to infrastructure group Ferrovial. Its shares have been treated harshly; investors seem to be ignoring the significant proportion of its revenues derived from toll roads in Canada. It also owns a stake in Heathrow Airport, which will remain a premium asset whose revenues will be derived from fees set by the regulator whether the UK is part of the EU or not.

In equities, some European financials may now be almost un-investable and we have lowered our risk profile in this area. Yet there are a handful of exceptions. Moneta Money Bank, for example, which we bought at the initial public offering (IPO). This used to be GE’s Czech consumer lending business. The Czech Republic is a beneficiary of the ongoing economic success of Germany, its neighbour, and unemployment is low. The yield is likely to be around 8%. And beyond financials, prospects for many other European stocks look fine. Interest rates that are ‘lower for longer’ should be seen as an opportunity for many of our holdings – notably real estate companies such as TLG Immobilien  and infrastructure stocks such as Ferrovial – rather than a threat.


For high-yield bonds the outlook is positive. For as long as the ECB continues to print money under the guise of QE it will compel investors to buy high-yield bonds in search for income. The US economy is also performing reasonably well, keeping defaults low. Despite the uncertainty created by Brexit, that oil prices have risen means we can expect default rates to fall.

At the same time, there are a number of legitimate concerns. The greatest, perhaps, is in the Italian banking system. A solution to the problem of non-performing loans needs to be found without wiping out the savings of Italian households (many of whom are direct holders of Italian bank bonds). Finding a solution to this problem that is acceptable both to the EU and to Italian voters will be hard. Other risks are familiar: levels of debt across Europe are too high and growth is still too slow.

* Data from 21 May 2012. Source: Lipper Limited, class I distribution units, bid to bid in sterling to 30 September 2016. All figures show total returns with dividends reinvested. Sector is IA Mixed Investment 20-60% Shares NR, universe of funds is those reporting net of UK taxes.

† Source: Artemis. Yield quoted is the historic class I distribution yield as at 30 September 2016.



Source: Lipper Limited, class I distribution units, bid to bid in sterling. All figures show total returns with net interest reinvested. As the fund was launched on 21 May 2012, complete five year performance data is not yet available.


To ensure you understand whether this fund is suitable for you, please read the Key Investor Information Document, which is available, along with the fund’s Prospectus, from

The value of any investment, and any income from it, can rise and fall with movements in stockmarkets, currencies and interest rates. These can move irrationally and can be affected unpredictably by diverse factors, including political and economic events. This could mean that you won’t get back the amount you originally invested.

The fund’s past performance should not be considered a guide to future returns.

The payment of income is not guaranteed.

Because one of the key objectives of the fund is to provide income, the annual management charge is taken from capital rather than income. This can reduce the potential for capital growth.

The fund may use derivatives (financial instruments whose value is linked to the expected price movements of an underlying asset) for investment purposes, including taking long and short positions, and may use borrowing from time to time. It may also invest in derivatives to protect the value of the fund, reduce costs and/or generate additional income. Investing in derivatives also carries risks, however. In the case of a ‘short’ position, for example, if the price of the underlying asset rises in value, the fund will lose money.

The fund may invest in emerging markets, which can involve greater risk than investing in developed markets. In particular, more volatility (sharper rises and falls in unit prices) can be expected.

The fund may invest in fixed-interest securities. These are issued by governments, companies and other entities and pay a fixed level of income or interest. These payments (including repayment of capital) are subject to credit risks. Meanwhile, the market value of these assets will be particularly influenced by movements in interest rates and by changes in interest-rate expectations.

The fund may invest in higher yielding bonds, which may increase the risk to your capital. Investing in these types of assets (which are also known as sub-investment grade bonds) can produce a higher yield but also brings an increased risk of default, which would affect the capital value of your investment.

The fund holds bonds which could prove difficult to sell. As a result, the fund may have to lower the selling price, sell other investments or forego more appealing investment opportunities.

The historic yield reflects distribution payments declared by the fund over the previous year as a percentage of its mid-market unit price. It does not include any preliminary charge. Investors may be subject to tax on the distribution payments that they receive.

The additional expenses of the fund are currently capped at 0.14%. This has the effect of capping the ongoing charge for the class I units issued by the fund at 0.89% and for class R units at 1.64%. Artemis reserves the right to remove the cap without notice.

Any research and analysis in this communication has been obtained by Artemis for its own use. Although this communication is based on sources of information that Artemis believes to be reliable, no guarantee is given as to its accuracy or completeness.

Any forward-looking statements are based on Artemis’ current expectations and projections and are subject to change without notice.

Issued by Artemis Fund Managers Ltd which is authorised and regulated by the Financial Conduct Authority.