Hedging against a Corbyn Govt

EdSwippet

Malthusian wrote: »

Er, it's twice as wide because the Tories nearly doubled the personal allowance. ...They pay less tax thanks to the widening of the personal allowance (and 60% tax band), just like anyone with income under £125,000. To those over it makes no difference, they have 0 personal allowance either way.

You are forgetting that on most occasions when the Tories increased the personal allowance, they also reduced the point at which higher rate tax kicks in, so that higher rate taxpayers got little or no benefit from the increased personal allowance. See this table for the numbers.

In 2010-11, higher rate tax began at £37,400, so a person earning £125,000 would pay £42,520 in tax. In 2018-19, higher rate tax began at £34,500, so a person earning £125,000 would pay £43,100 in tax. That is a £580 tax increase. More tax, not less. (In 2015-16, the nadir of the higher rate tax threshold, the tax on £125,000 would have been £43,643, representing a £1,123 tax increase over 2010-11.)

Now who is the Diane Abbott? :-)

Ganga

All this speculation on a Labour Party Win,cannot see it.

michaels

The GBP hedge would be against labour not getting in and GBP appreciating resulting in a GBP loss on a mostly non-uk portfolio. This is not about a strategy to benefit from a labour win but one to hedge against the risk of either outcome.

LHW99

How about an each way bet at the Bookies?;)

michaels

LHW99 wrote: »

How about an each way bet at the Bookies?;)

Tbh perhaps betfair is the cheapest way to buy a hedge against a labour victory or a hard brexit. The key thing here is not knowing or judging either outcomes but merely wanting to maintain a portfolio value rather than it being at risk or a sharp swing in value either up or down as the result of a binary event.

[Deleted User]

Probability weighted consequence of Corbyn/McDonnell coming to power is already reflected in somewhat lower stock prices. The probability is low but the consequence is large.

If this were to happen, the capital flight would be devastating, UK would be turned into the 1985 Liverpool and emigration would be the right answer.

michaels

Deleted_User wrote: »

Probability weighted consequence of Corbyn/McDonnell coming to power is already reflected in somewhat lower stock prices. The probability is low but the consequence is large.

If this were to happen, the capital flight would be devastating, UK would be turned into the 1985 Liverpool and emigration would be the right answer.

Of course it is already priced in, but as you say, weighted by probability. That probability is likely to swing and should the downside happen then losses might be large. As a pension pot holder I would be willing to forgo some upside to hedge against a severe downside and don't know the best strategy to acheive this.

Malthusian

EdSwippet wrote: »

Now who is the Diane Abbott? :-)

Find a number at which someone is worse off with a £12,500 personal allowance than a £6,500 allowance and I'll tell you.

If your beef was with the widening of the 40% rate tax band instead of the widening of the 60% tax band, you should have said so in the first place.

EdSwippet wrote:

But then, the same could have been said about the effective 60% tax rate introduced by Alistair Darling on earnings between £100k and around £113k in the dying days of the last Labour government. Not only is that still with us, but the band is now nearly twice as wide as when the Conservatives came into power, stretching from £100k to £125k

If you say that the Tories hammered the rich by widening the 60% tax band, and I point out that they didn't because they benefited from the widening of the 60% tax band (aka the personal allowance) or saw no change, then performing a reverse ferret and starting to talk about the 40% tax band isn't going to change how the 60% tax band / personal allowance works.

Malthusian

michaels wrote: »

The GBP hedge would be against labour not getting in and GBP appreciating resulting in a GBP loss on a mostly non-uk portfolio.

But your loss is only on paper because your GBP will buy more of anything made outside the UK, i.e. almost everything.

Buying hedged global equities instead of the more normal unhedged global equities is a bet that Sterling will rise.

As a pension pot holder I would be willing to forgo some upside to hedge against a severe downside and don't know the best strategy to acheive this.

If you're holding unhedged global equities via a major multinational platform, and have a swift exit near at hand, you're already hedged against the possibility of a collapse in the UK economy. And you're not forgoing any upside.

MarkCarnage

I also think that some differentation needs to be made between responding to the threat of a Corbyn Government, and hedging.

Hedging implies that known and quantifiable risks exist, which are unrewarded risks for the investor. Therefore a pension fund may hedge against adverse moves in interest rates, inflation, longevity and currency which will worsen its funding position. These are all more or less quantifiable, maybe not perfectly so, and not static, but there is a clear and defined cause and effect. In addition, there are investment instruments to hedge these (holding a physical asset, holding derivatives - swaps, options, currency forwards etc). If a pension fund is properly measuring and monitoring these, they are manageable.

I don't think that 'the Corbyn effect' can be hedged in such a manner. Like those mentioned above, it is an outcome with uncertainty and risk attached, and a probability that is difficult to measure. However, there are no clear hedge instruments that will give a defined outcome in terms of eliminating that risk, or even providing a known level of mitigation.

It therefore becomes a more subjective matter, and one where it may be very hard to mitigate - e.g. if you can't move your pension capital base abroad. If capital controls were to come in, it might mean you can't move anything abroad, if you've anything left to move that is.....

I agree that hedging £ would seem a strange response, unless you have known £ liabilities in a relatively short timeframe that you are seeking to fund from non £ assets. It hasn't been the right thing to do for the last 50 years at least, and I don't see any compelling reason to do it now.