Solomon Nevins, investment manager, Architas
A Trump victory is seen as having a greater economic impact, particularly in the longer term. However, we recognise the limits placed on the power of US Presidents so the identity of the eventual winner has not heavily influenced our outlook.
Our focus remains on market fundamentals. Despite some recent negative data from the US we think there is a reasonable chance for an improvement in corporate earnings and GDP growth. As such, we are maintaining our neutral allocation to the US for now while favouring large-cap, quality stocks with a domestic bias.
For our core defensive allocation we use the JPM US Equity Income fund, which is managed with a focus on quality and value. While delivering income, the fund has a low tracking error and should therefore perform similarly to the US market. The fund has a good track record of protecting in falling markets and the large allocation to financial stocks should help the performance in an environment of rising rates.
To take advantage of any larger dispersions in valuations and share price performance as we move into the later stages of the market cycle we also hold the Artemis US Extended Alpha fund as a satellite position in portfolios. This long/short fund can get up to 150 per cent exposure to the US market by buying stocks and using derivatives but will also go as much as 50 per cent short.
Jason Stather-Lodge, CEO, OCM
There are three issues that are prevalent with the election that impact on our positioning. The first is personality. Following the first presidential debate it appeared that Hilary Clinton won and the markets liked that result. It is a widely held belief therefore that Clinton is positive for markets and Trump negative, due to his irrational and unpredictable behavior and the fact he has no real policies on global and domestic economic issues. As we believe that Clinton will win the US Presidential election we are therefore maintaining our weighting of around 15 per cent exposure to the US in the short term. However, although Clinton does not make markets so nervous, she does support high corporate taxes, penalties, and increased overall financial regulations, which could be a significant negative for equities in the longer run.
Clinton and Trump have promised to cut taxes for corporates so they can repatriate the trillions of dollars held abroad and start a policy to invest again in the creaking US infrastructure. If those two promises are carried through they will create a significant stimulus that will prompt share buy backs, create a flurry of mergers and acquisitions and create jobs. Whether those two promises are carried through is less likely if Clinton wins. So overall, irrespective of who wins, being long US equities is a good position to take, noting Trump will cause more short term volatility.
Joe Le Jehan, fund Manager, Schroders
The election is likely to create bouts of volatility across asset classes as we draw closer to November both because of the close nature of the race and the perceived significant differences between the two leading candidates. The nature of the debate thus far and the increasing polarisation of politics (not just in the US) feed into our ongoing willingness to push against the dominant ‘secular stagnation’ theme within markets.
There are undoubtedly longer-term headwinds to inflation and growth – ageing demographics, debt burdens and technological advance amongst others. However, in the near term the significant skew of market positioning to this more deflationary stance means there are interesting areas of unloved value that could benefit should inflation expectations halt their march downwards and indeed reverse, even if only modestly. A growing wave of ‘anti-establishment’ sentiment has forced politicians away from the centre ground in order to re-engage with the populist vote. This has the potential to ease deflationary fears in the near term with both Trump and Clinton promising significant spending plans – albeit each with their own nuances and agendas – that could shift investor sentiment materially. Given both relative valuations and the lopsided nature of investor positioning, this election has the potential to see significant shifts towards many inflation beneficiaries that have been left behind in this bull market and away from some of the more crowded areas – be they bond proxies or other asset classes.