Should uncertainty over looming general election effect investment decisions?

But should UK political uncertainty matter to people choosing funds?

Jason Chapman, managing director at online service Willis Owen, says: "There are signs that retail investors are playing a game of wait and see. With the starting gun fired on the most unpredictable election in years, it will be fascinating to see the extent to which they wait for the dust to settle, and keep a close eye on the markets before making any big decisions."

One in four adults think the election will have an effect on their financial decision making, with one in ten holding off any major savings or investments until after the votes are in, according to the company's research.

Brokers Tilney Bestinvest say investors' preference for European and Japanese funds over the UK is probably being reinforced by the political uncertainty.

Tilney's MD Jason Hollands say there is a range of potential outcomes on 7 May. "A surprise Tory victory might see a relief rally in utility and banking shares - areas targeted for greater tax raising and regulation by Labour - but even that outcome could soon give way to worries about the UK's EU membership. The coming weeks are therefore likely to see continued heightened volatility in the markets, particularly in the value of sterling."

Hollands adds: "Of course it is worth pointing out that in the main, the UK stock market is very international in nature with some estimates suggesting that up to 80% of revenues generated by UK plc being earned overseas. So if anything, knee-jerk selling of UK equities could represent a buying opportunity. It takes guts to invest when others are running for the exit - but it can also pay rewards."

Andrew Bell,chief executive of the Witan global investment trust, says investors should look beyond the politics. "I think this year will be one where economic growth surprises on the upside. The market has been very quick to spot obvious losers, but lots of companies will have energy costs as an input and are going to save a million or two, and if you or I are going to save £10 or £20 a month, multiply that by tens or hundreds of millions by 52 weeks a year and it amounts to a lot of spending power.

"The UK market is much more sensitive to non-parochial things -whoever wins the election, its fortunes are going to be driven by the world economy and the direction of sterling."

Alliance Trust, like Witan one of the biggest investment trusts seeking global growth, is currently embroiled in a battle with an activist shareholder which has seized on the trust's mediocre performance.

While Alliance is unusually managed in-house, and most trusts contract with a single manager,Witan uses a gallery of different managers. Bell explains: "Our performance in the early years of the century was poor. Our logic was not everybody is good at everything and not everybody performs through the cycle......you should get better performance as a result of picking people for what they are good at, who may not all be in the same fund management house."

Witan's strong performance suggests the strategy is working. Many investors adopt a similar approach when picking their own funds. But beware following the crowd into the most fashionable funds, which may be about to underperform, according to Wealth Horizon. Its chief executive Chris Williams says: "The simple fact is, buying an active fund is a total lottery, with one year's star performer next year's dunce."

Wealth Horizon offers investors the chance to diversify their holdings across a large number of low-cost passive funds.

However Hollands says: "There is no need to be dogmatic between 'active and passive' investments, both can play an important role in a portfolio: a passives- only approach is just as flawed as one that confines itself to actively managed funds. However, when choosing an active fund, it is vital that investors are very selective and confident that the fund's manager has the skills to add real value."

Bell comments: "People spend far too much time worrying about whether the market goes up the year after they buy it. If you are saving for 30 or 40 years, it really is time in the market that matters. The problem with obsessing about short-term performance is it actually leads you to do the wrong thing."

On active management, Bell says: "It is a bit unambitious to say just because we can't all be Wimbledon finalists or opera singers nobody should bother trying."

CASE STUDY

Michael Dick, an investment trustee from Edinburgh, is "concerned at the

level of the market" just now when it comes to considering new investments.

"Markets have been strong but I have my doubts as to whether corporate

earnings growth and dividends equate to where the markets are at the moment.

The US has done very well, the UK is back to its previous highs, Europe has

had a very strong run but is probably still a bit undervalued."

Dick likes investment trusts, and says they are more attractive these days

because discounts (gap between value and price) are better managed. "I still

think they serve an extremely good purpose," he says.

He likes F & C Global Smaller Companies, Scottish Mortgage, and

Aberforth Smaller Companies, but says Alliance Trust has been "disappointing"

and may benefit from the current shareholder activism.