Schroders’ Jenny Jones: Trump’s immigration and tax plans ‘concerning’


Trump’s tax repatriation plan and proposals for tighter immigration controls are a cause for concern, says Schroders’ star manager Jenny Jones.

The manager of the $2.2bn (£1.8m) US Mid Cap fund says President-elect Donald Trump’s “tough stance” on immigration could have a negative impact on the housing market.

“It’s an issue I think is concerning,” Jones says. “In 2004 or 2005 President Bush changed the immigration policy and I was concerned then. Changing the immigration rules as he did – I don’t know about the housing market, but I knew an important part of the housing market was the population growth. It was a critical lynch pin in the housing market and the demand for housing. We want to see population growth.”

On Trump’s tax repatriation plan – which aims to bring back US money overseas through corporate tax cuts – Jones says: “there are two sides to it”. Referring to the US tax holiday in 2004, she says that while many companies came back, they didn’t invest.

“To the degree that the stipulations say you can repatriate but you have to spend, I think that will be a critical piece of any kind of repatriation that there might be. Certainly recent history did not bear out well in terms of growth to GDP.”

“The populist movement we see across the world is something that should be paid attention to. How that gets resolved and what that does to being a more protectionist world, we’ll see. It’s food for thought.”

2016 has been “quite a ride” Jones says, both for the market and specifically small and mid cap stocks. Small-cap benchmark the Russell 2000 index was up 15.9 per cent following the election, compared to the S&P 500, which was up 6.3 per cent.

“Ever since the election that part of the market has soared, mostly the small caps, which is a problem for us as we are not set up to be in the tiniest companies. It does makes sense though as those companies are exclusively US with very little international exposure.”

However, the bond markets have not fared so well; 10-year US treasuries were up 53 basis points over the same period to 2.31 per cent.

Jones says that while the equity markets are buoyant on the prospects for GDP growth if Trump lowers taxes, reduces regulations and embarks on fiscal stimulus, the bond markets are “gloomy” on the concern spending could lead to inflation. However she warns that the equity rally “may be ahead of itself”.

“For some of the companies in financials, my world of financials, the impact will be immediate. Other factors will take longer than you expect and may not come to fruition in the way the market is anticipating today,” Jones says.

Trump’s proposals to repeal parts of the Dodd-Frank reform and the Consumer Protection Act, the financial regulation passed by President Obama in 2011, has positively impacted a lot of the mid-cap and smaller banks – the regional US banks – Jones adds.

“If there is a further repeal on some of those factors, that means banks can lend without having as much capital in their base, lending should be a little easier,” Jones says.

The US Mid Cap fund has benefited from the performance of the banking sector through its overweight to banks. The fund has 16.5 per cent in financial services and is up 45.2 per cent against the 34.5 per cent average in the North America sector over one year, FE data shows.

“We had overweighted a lot of banks in our portfolio as they were trading at levels I had not seen since the late 1990s. I didn’t foresee the result of the election; it was one of the areas there was value. Banks are up an average of 20 per cent in my part of the market. It’s an area where earnings per share will be affected quite positively, very quickly.

“This is an area we’ve been very happy; it’s helped our portfolio. I don’t think the companies have gone up too quickly – in other areas I can’t say that. You’ve seen a lot of the consumer companies go up quite significantly, you could say they’re mispriced, time will tell…You could have some kind of pullback. I am concerned certain parts of the market have gone up too much too soon.”

Jones is focusing on three types of stocks: mispriced growth companies that are growing as a result of industry or company factors, which make up 50-70 per cent of the portfolio; ‘steady eddies’ – companies with stable growth characteristics, which comprise 20-50 per cent of the fund, and ‘turnarounds’, companies that aren’t growing but have put the catalysts in place for growth, which represent up to 20 per cent of the portfolio.

“I love the growth you can find in the smaller and mid-size companies, but with growth inherently there is greater risk,” Jones says. “These are three different types of investment where we can capitalise on the upside without the inherent risk.”

Jones names US internet company Verisign as a typical long-term holding. The company is the sole registrar for popular internet domains and invested heavily in its early stages to achieve its dominant status. It has low investment needs and strong cash flow despite the modest growth in domain names, Jones says.

“It had its heyday in the late 1990s…It sold off its secure authentications label; the management is focused on selling off pieces of the business. We have stuck with it. It has invested a lot of money and still has a very big dotcom business. The company has continued to generate a lot of free cash flow and has great returns on capital.

“We have owned it since 2003/4 – I think Warren Buffett invested two or three years ago.”