Well, that is that.
Donald Trump is the US president once more and, as the dust settles on one of the most widely-anticipated events of the calendar year (besides the Asset Allocator 100 Club, of course), those in the financial sector are left to make sense of it all.
We at Asset Allocator can’t speak on behalf of everybody, but we thought we would try to figure out how multi-asset managers are approaching the new US government in their positioning.
Let us begin with the implications for global markets, then. Capital Economics gave a blunt take on a webinar yesterday: “It's not really good news as such, but it's not the end of the world either.”
Indeed many of Trump’s policies will fly in the face of conventional economic conditions: some of his policies, including tariff-jacking, are reflationary and may lead to interest rate rises from Jay Powell and co.
Fewer rate cuts from the world’s leading central bank could keep the dollar strong, providing a double headwind for emerging markets. Tariffs and trade wars may further batter Chinese funds, too, which have only just got out of the woods.
Protectionism
Domestically, however, the mood is so far bullish: protectionist trade policies, lower corporate tax rates, and more government spending is music to the ears of American executives, which is why the US market and smaller companies in particular have rallied on the news.
But this writer needs to slow down for a moment and remember that Asset Allocator’s readership is predominantly discretionary fund managers, who by nature invest in a broad range of asset classes, styles and regions to achieve the holy grail of ‘diversification’ for advisers and clients.
This means no allocator worth their salt should be so heavily reliant upon the US to deliver their goals to clients, nor should they be thinking too much about tactical trades around the outcome of the election.
Ben Conway, chief investment officer at Hawksmoor, said his job was to ensure their portfolios can weather macroeconomic, geopolitical and even cultural changes, and that elections in themselves are rarely consequential for any well-diversified portfolio.
“Does this increase the probability of China invading Taiwan? Does this spell the end of an independent Ukraine? What are the consequences for Moldova and Georgia and others?
"These are questions for geopolitical analysts, not investment managers,” he said, sticking firmly to protocol.
Long-term outcomes
Focusing on long-term outcomes should also rule out binary bets on election outcomes as well as volatility trading, which isn’t really the remit of a multi-asset manager.
It will also take time to find out which of Trump’s policies make it out the other side.
“Over the short term we have made no changes to asset allocation, but that does not mean there will be none soon,” said James Calder, chief investment officer at City Asset Management.
“We currently lack information to make an informed decision.”
He said his concerns included US debt and its impact on yield, more inflation, and higher rates from strict tariffs.
“But that is next year’s challenge,” he added.
For passively-managed portfolio managers such as Sparrows Capital, as a general rule it pays to ignore ‘noisy’ elections and focus on the end goal.
Back to work then, folk - it is business as usual.
