US Election: True Potential Update
Early on the morning on 9th November 2016, it was reported that Donald Trump has been elected into office as the new President of the United States. Hillary Clinton had been the favourite virtually all the way through the campaign and, for many people, it was a shock result.
Although the result for many investors may be worrying, we believe it is important not to become disheartened by negative press and remember long-term goals. Whilst the immediate aftermath may be uncomfortable, market fluctuations are not unexpected and it is often during these falls opportunities for fund managers seeking favourable prices are presented.
Preparation and Diversification
To mitigate the risk from any one particular area, in this case, a political shift, diversifying your investment effectively could have helped, and could help, shield you from the harshest of shockwaves which may have been felt by those invested in a single asset class or geographical location. In this instance, whereby the impact is felt across asset class, geographic region, currencies and so on, this has never been more true to be adequately diversified in your investment.
Our Fund Manager Partner Comments
We’ve gathered the thoughts of our fund manager partners who echo our view of investing for the long-term and to not be perturbed by short-term, concentrated market fluctuations. We are in continued discussion with our fund manager partners and their discerning views and forward-looking strategies, shape the decisions we make on behalf of our investors.
“Now the election is behind us and we are certain Trump is the next President, any knee-jerk market reactions to the newly elected president will likely calm as the nature of his presidency becomes more clearly defined.
We expect US economic growth to accelerate and corporate earnings to strengthen in the quarters ahead. We remain committed to the “risk-on” theme in the US and find the high yield market particularly attractive relative to short-term government and investment grade securities.
As an investor, it is best to stick to long term goals and tune out the noise – whether that comes from Wall Street, Main Street or Pennsylvania Avenue.”
“While our base case was for a Clinton victory, we took advantage of price action leading up to, and following the announcement.
In the case of the Trump victory, we expected much higher short-term volatility than if Clinton won. However, given larger fiscal stimulus/lower corporate tax rate/low rate on repatriated cash seen as marginally better for US equities overall on medium-term view, as long as there are no major blows in terms of political risk.”
“Although today’s reaction has been negative, a more measured approach is required as over the longer term the policies could be stimulative for both the US and Global economy. Diversification will help to guide through uncertain times and over the long term investors are rewarded for accepting uncertainty.”
“Initial reactions were negative, however, we will see what materialises over the coming hours and days. We are likely to see significant volatility as the low rate environment of recent years, which has supported equity valuations and driven the “bond proxy” stocks, possibly unwinds.
It is not clear how the US dollar would behave in this environment. Some see a stronger currency driven by higher yields, but as this will be accompanied by higher inflation such a conclusion is not obvious. The best bet is that safe haven currencies such as the Japanese yen and Swiss franc are likely to be in demand and investors are also likely to favour gold.”
“We feel the investment environment is moving “risk-off” and we see a greater demand for potential safe havens such as gold and US Treasuries. We feel the current environment reinforces the need for active management, using managers that are agile in their asset allocation, confident in their underlying investment processes and thorough in the global research and insights underlying each investment decision.”
“Longer-term, the obvious winners will be infrastructure, with a focus on roads, bridges and airports that would benefit from M&A and industry consolidation, which Trump is particularly enthusiastic about. Other sectors likely to do well include consumer discretionary, consumer staples, telecoms energy and mining. More on Trump’s policies will emerge over the coming weeks, but in the meantime markets are likely to remain volatile as they deal with the ongoing uncertainty.”
“We think our overweight positions in the US market and US Dollar will be supported by price action. We believe that our exposure to high quality equities, particularly companies with cash abroad, will benefit from the possibility of cash repatriation. Our exposure to sectors such as defence and technology will benefit from any increases in spending in these sectors.
As we write, the initial sharp sell-off in global market futures has been tempered following Trump’s conciliatory acceptance speech. If his acceptance speech sets the tone for his Presidency this will send a positive message to markets, but it is all in the execution.”
“Though many polls reflected a tight race, the result was a surprise for markets and the initial reaction has been turbulent as investors adjust positioning. We expect volatility to remain elevated over the near to medium term, and we are well placed to leverage opportunities as they arise.
Broadly speaking, our fundamental economic outlook is unchanged. We expect healthy but unexceptional growth in the US of around 2% for the next couple of years, with continued strength in inflation.”
Naturally, our fund manager partners all have differing views on the outlook after the US election result, with some common themes emerging. Over the short-term, we can expect some volatility but as clear defined policies come through from the Republican camp, it is our expectation that the initial market reaction will calm or, indeed, have a positive effect.
No one can accurately predict the markets and, much like the election, there will always be winners and losers. Having an investment style that is equipped to deal with, and manage, volatility could be of great benefit to investors. We advocate Advanced Diversification in our True Potential Portfolios, offering a multi-layered strategy for investing which spans asset class, geographic region and the investment styles of our world-renowned fund manager partners.
With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. This blog is not personal financial advice.