As investors digest the shock news of Trump’s victory and markets begin to recover themselves after this morning’s sell-offs, which asset classes and sectors are likely to fare best under the Trump administration?
In a client note Standard Life Investments said that although equity markets initially took a pummelling on the shock result, lower corporate taxes under Trump’s regime and looser regulatory policies could boost equities.
However, the group warns a rising dollar or higher interest rates would have the opposite effect while firms with global reach could suffer.
“This environment is likely to create opportunities for ‘bottom-up’ stock-picking in both equity and bond markets,” SLI says.
“Even in a benign trade policy scenario, firms with extensive global value chains, or reliant on migrant labour, would face a more uncertain future, while firms facing less onerous regulatory requirements stand to benefit. If the new Trump administration pursues an aggressive unwinding of polices that have supported globalisation, an extended period of weakness for risk assets is likely.”
Among US equities, Mark Burgess, Columbia Threadneedle Investments’ global head of equities, lists infrastructure and financials among the sectors likely to benefit under Trump’s administration.
“For the US domestic economy, the obvious winners are infrastructure, with a focus on roads, bridges, airports and sectors that would benefit from M&A and industry consolidation, which Trump is particularly enthusiastic about.
“Financials will benefit from loosening of the Dodd-Frank regulations, while the defence sector is likely to thrive. Other sectors likely to do well include consumer discretionary, consumer staples, telecoms, energy and mining. We expect fiscal easing to come through in the shape of tax cuts, targeted in particular at low-spending consumers, and an increase in defence spending.”
Mike Fox, RLAM’s head of sustainable investments, agrees infrastructure is a likely beneficiary of Trump’s regime, adding technology and healthcare are sectors he is looking to increase exposure to.
“Industries such as technology, healthcare and infrastructure will continue to thrive due to them addressing genuine social need through innovation and provision of essential services. These are the areas we are looking to add to into any market pullback.”
Angel Agudo, portfolio manager of the Fidelity American Special Situations fund, says that while the healthcare sector will be supported by Hillary Clinton’s loss and the elimination of her drug pricing challenges, further clarity is needed on Trump’s plans for the Affordable Care Act and drug pricing.
Jeff Rottinghaus, portfolio manager of the T. Rowe Price US Large Cap Equity fund, points out energy stocks could see an uplift from Trump’s relaxed attitude to regulation.
“In a vacuum, more energy production is a good thing – more jobs, cheaper oil, cheaper gas. Less regulation could help energy investments because it could lower companies’ costs to pull resources out of the ground.”
Commentators are less sanguine on the outlook for US treasuries market due to Trump’s dismissive comments about debt repayments.
“Given the likely increase in budget deficits, we expect a steeper bond yield curve,” Burgess says. “Additionally, Trump has made some disconcerting comments regarding a lack of commitment to debt repayments.”
SLI expects global government bonds to benefit over the short term but its medium-term outlook is dependent on the policies Trump announces, while
Monica Defend, head of global asset allocation research at Pioneer Investments, says that although Trumps’ policy agenda is still unclear, it “may be bearish for income-related investments and could lead to a steeper yield curve”.
She says: “We think gold is a key structural hedge against additional spikes in volatility and recommend a focus on active management, an overweight to quality assets and believe an emphasis on downside risk mitigation will be crucial in the next few months.”
Jonathan Platt, RLAM’s head of fixed income, is focusing on corporate bonds and mitigating inflation.
“Having initially sold off sharply, the yield on US government bonds has already risen back. However steeper yield curves and the implied level of future inflation have both risen, indicating longer-term uncertainty.
“As bond investors, we are maintaining our short duration positions, our overweight allocations to, and positions within, credit markets and a preference for inflation protected securities as we continue to see expectations of inflation rising.”