Russia’s invasion of Ukraine and the Covid-19 pandemic illustrated the importance of this.
Sticking to our process
Whatever the outcome from what looks set to be a very close presidential race, we do not expect political machinations to have a material impact on the long-term prospects of major asset classes.
Over the long run, the US stock market has risen on average, whatever the permutation of government, Senate and House of Representatives. US businesses are run to generate profits for shareholders regardless of the political winds.
Inevitably, new governments bring change, and there will be winners and losers because of those changes, but a diversified basket of stocks should provide long-run returns in line with historical norms for the equity market.
If the US were an unpredictable, politically unstable country then more attention would likely need to be paid to election noise. But the US is a centrist, democratic country where rule of law is respected. This means it is more appropriate to base investment decisions on valuations of assets and long-term fundamentals.
Active managers provide access to stock-picking skill, which should help to identify potential beneficiaries of any political change, and portfolios with a significant level of diversification should ensure they are not overly sensitive to any single risk factor, such as an election result.
James Klempster is deputy head of multi-asset at Liontrust
