Politics, Predictions & Portfolio Resilience
Updated: Aug 24
Why portfolios should be driven by process, preparedness and evidence - not political predictions
1. A new Prime Minister is in place, but political speculation should not drive portfolios
On 22 June 2026, Sir Keir Starmer announced that he would resign as Labour leader and step down as Prime Minister once a successor had been chosen. Andy Burnham was elected Labour leader on 16 July and became Prime Minister on 20 July 2026. Attention has since shifted from who might replace Starmer to what the new administration could mean for taxation, spending, borrowing and regulation.
The new government’s policy direction may affect inflation, interest rates, sterling, gilt yields, company earnings and client portfolios. Yet that does not make today’s predictions reliable investment signals.
To reposition a portfolio on the political story, an investor would have to forecast several linked outcomes correctly: which policies are proposed; which survive fiscal constraints; how they affect the economy; and how markets respond. Being right about one step does not make the rest inevitable.
The initial response was a useful reminder. Sterling remained lower, but the FTSE 100 was steady and the ten-year gilt yield broadly unchanged. Markets had largely anticipated the resignation and were waiting for evidence of policy change.
The change from Starmer to Burnham does not alter the investment conclusion. Political developments should be monitored, but portfolios should not become political betting slips. Speculation describes what might happen. A sound investment process responds to what can be evidenced.
2. People are poor predictors
Human beings dislike uncertainty. We look for patterns, build explanations and assume that understanding the present enables us to predict the future. Unfortunately, confidence and accuracy are not the same thing.
Economies and markets are difficult to forecast because they are adaptive. Governments alter policy, businesses change strategy, consumers respond to prices and investors act on expectations. A prediction can even change the behaviour it seeks to predict.
Research shows how easily experienced professionals underestimate this uncertainty. Itzhak Ben-David, John Graham and Campbell Harvey examined more than 13,300 stock-market forecasts made by chief financial officers. The CFOs gave ranges within which they believed the following year’s return would fall with 80% confidence. Properly calibrated forecasts should have captured the outcome four times in five. Actual returns fell inside those ranges only 36% of the time.
These were senior executives familiar with budgeting, risk and capital allocation. Their problem was not intelligence; it was excessive certainty about an unknowable future.
The same pattern appears in market forecasts. Economists expected UK CPI inflation to rise to 3.0% in May 2026, but it remained at 2.8%.
In January 2024, markets priced four Bank of England rate cuts during that year, beginning as early as May. Only two occurred, the first in August, and Bank Rate ended 2024 at 4.75% rather than 4.25%.
Company earnings are no easier to anticipate. With 89% of S&P 500 companies having reported for the first quarter of 2026, 84% had exceeded analysts’ earnings-per-share estimates; collectively, earnings were 18.2% above estimates.
Forecasts can help explore scenarios. The danger begins when one is treated as an instruction to concentrate a portfolio around a political outcome, rate call, region or market narrative.
3. Replace prediction with process and preparedness
A more robust approach is to replace dependence on prediction with process and preparedness.
Process means deciding in advance how investments will be selected, risks controlled, allocations limited and changes justified. Preparedness means accepting several plausible outcomes and building a portfolio that does not require one of them to occur.
That is why diversification matters. A resilient portfolio combines several well-supported ideas with different return drivers. Owning numerous funds is insufficient if they ultimately hold the same companies or depend on the same country, style, currency or interest-rate outcome.
The UK Managed Portfolio Service market provided a useful example during 2025. Defaqto found that passive Adventurous MPS portfolios had roughly half of the portfolio invested in US equities, compared with only a third of active equivalent portfolios. This dependence on the US, although beneficial in previous years, saw those same passive Adventurous portfolios deliver 4th quartile returns for the year of 2025, with their active counterparts performing in a much more stable and consistent fashion. This is not an argument against US equities, which remain a vital source of innovation and profitability. Nor does one year prove that diversified portfolios will always lead. It demonstrates that even an excellent investment can become a portfolio-level vulnerability when too much depends on it.
A diversified portfolio will inevitably contain something disappointing. When one market dominates, allocations elsewhere may appear unnecessary. Their purpose becomes clearer when leadership changes.
A good process can also produce a poor short-term result. Every credible philosophy and portfolio range experiences underperformance. The test is not whether each decision worked immediately, but whether it was consistent with objectives, risks were understood and the supporting evidence remains valid.
4. Respond to change, not speculation
Rules-based investing should not mean static investing. Discipline requires patience when a sound idea is temporarily out of favour, but adaptability when the evidence changes materially.
There is an important difference between reaction and adaptation. Reaction means changing a portfolio because of a headline, forecast or uncomfortable return. Adaptation means acting because observable data has crossed a predetermined threshold.
The recent political transition illustrates the distinction. Reaction might have involved reducing UK assets because commentators predicted higher borrowing. Adaptation means reassessing exposure as policies are announced and measurable changes emerge in fiscal plans, valuations, earnings, risk or market behaviour.
A systematic process may not be first to respond because it waits for confirmation. That can be a strength, reducing the risk of repositioning around outcomes that never arrive. Regular monitoring allows funds, sectors, styles and regions to be assessed consistently. Sometimes the evidence supports a switch; at other times, a deliberate decision to do nothing. The aim is not inactivity, but evidence-led activity.
5. The Clever way
CleverMPS portfolios are managed by CleverIM and powered by the CleverEngine, a proprietary system using data, rules and discipline to build, monitor and optimise portfolios. It analyses fund, style and sector each month and is designed to determine where to invest, what to invest in, when to act and why.
Being rules-based supports discipline. Being data-driven grounds decisions in observable evidence. Being agnostic prevents permanent attachment to active or passive management, growth or value, the UK or US, or short- or long-duration bonds. Being adaptive allows portfolios to change when evidence changes materially. Monthly analysis does not mean monthly trading. It creates regular opportunities to make an auditable switch or no-switch decision against the same framework, reducing the influence of emotion, headlines and persuasive predictions.
No investment manager can foresee every political development, economic release or market movement. No process can prevent losses or ensure every decision succeeds immediately. CleverIM offers a more credible objective: portfolios built from a diversified mix of good ideas, monitored systematically and able to adapt when actual data – not speculation – indicates that conditions
have changed.
The future will continue to surprise politicians, economists, analysts and investors. The answer is not
to find a forecaster who sounds more certain. It is to replace prediction with process and preparedness, concentration with diversification, and reaction with disciplined adaptation. The strongest portfolio is not built around the most convincing prediction. It is the one that does not require that prediction to be right.
Author.
George Cliff, Co-CIO and Director of Research at CleverIM.
Sources.
Bank of England (2024) Bank Rate maintained at 4.75%—December 2024 Monetary Policy Summary and Minutes. Published 19 December 2024.
Ben-David, I., Graham, J.R. and Harvey, C.R. (2013) ‘Managerial Miscalibration’, The Quarterly Journal of Economics, 128(4), pp. 1547–1584.
FactSet (2026) ‘S&P 500 Earnings Season Update: May 8, 2026’, 8 May.
GOV.UK (2026) Prime Minister. Andy Burnham became Prime Minister on 20 July 2026.
Office for National Statistics (2026) Consumer Price Inflation, UK: May 2026. Published 17 June 2026.
Reuters (2024) ‘Bank of England Set to Start on Path Towards Interest Rate Cuts’, 23 January.
Reuters (2026a) ‘Britain’s Keir Starmer to Resign, Pound Holds Lower’, 22 June.
Reuters (2026b) ‘Britain’s Pound, Gilt Prices Hold Lower After Starmer Steps Down’, 22 June.
Reuters (2026c) ‘UK Inflation Unexpectedly Sticks at 13-Month Low Before Bank of England Rate Decision’, 17 June.
Turner, M. (2026) ‘MPS Allocation Review: Risk-On Pays Off and Diversification from US Delivers’, Investment Week, 11 February. Analysis based on Defaqto MPS Comparator data. Image Istock.com
Important Information.
Capital is at risk. The value of investments and any income from them can fall as well as rise and are not guaranteed. Investors may receive back significantly less than they invest. Past performance is not a reliable indicator of current or future performance.
Diversification does not guarantee a profit or protect against all losses. Investment funds may be exposed to additional risks arising from their underlying assets, geographical exposure, currencies, liquidity and investment strategy.
This article is intended for information purposes only. It does not constitute personal investment advice or a recommendation to buy, sell or hold any investment.
