Wealth managers sit tight as election dip underwhelms

Added 9th November 2016

Healthcare and defence were the immediate winners at sector level following Donald Trump’s controversial victory as the outsider Republican candidate was named President elect of the United States.

Wealth managers sit tight as election dip underwhelms

While markets had priced in a ‘status quo’ Hillary Clinton win over Trump – with his lack of political experience - many sectors could benefit from the result.

David Coombs, head of multi-asset investments at Rathbones, said his team was positioned for a Trump win as the biggest volatility trigger, and its likelihood was “too high” to ignore.

Going into the election, Coombs said they had taken down US dollar weightings in their medium-risk funds from around 25% to around 10-11%, sold US Treasuries, hedged half their US equity exposure and bought some Swiss francs.

“We moved into fairly high cash positions – with 15% in our medium risk fund and 30% in our low risk fund, going into the election.”

At the time of writing, the team had not implemented any changes “except a tiny European stock trade” but was planning to spend the next few days assessing each holding on a line-by-line basis.

“We didn’t reduce equities overall because they are just too nuanced. We hold 45 stocks and intend to go through them sector by sector, company by company.

“We made sure we had exposure to healthcare – we added to Amgen, and hold Roche, Novartis, Johnson & Johnson and Smith & Nephew which had all weakened as Hillary looked like winning. Roche and Novartis are up nearly 4% this morning.”

Coombs also added aerospace and defence company Lockheed Martin with expectations that sector would rally under a Trump win.

Further, he expected construction to be strong amid Trump’s claims to boost infrastructure, and consumer sectors to be strong over promises of widespread tax breaks.

Other wealth managers – at the time of writing – were also seemingly underwhelmed by the market reaction, having been poised for a buying opportunity.

James Calder, research director at City Asset Management, said his team had US and UK equity-focused trades prepared in anticipation of the result, but – at the time of writing – had not yet acted.

While UK markets had dipped, they had hoped to do some “bottom fishing” in the S&P and South East Asian emerging markets, but the opportunity was yet to be seen.

“The market reaction was much more muted than we had expected. We are down 1% so it’s still not as great day, but it’s not a bad day. We have seen bigger moved on less information in the past few weeks.”

Calder said while many of Trump’s policy proposals were fairly thin on detail, it would be January before he was sworn in and likely to be a year before any policies actually took hold.

“The wise thing will be to look at trade barriers, aerospace and defence. He’s talked about tax breaks so that might lead to more fiscal spending, growth in infrastructure.

On a fundamental basis, the US still looks attractive, with Calder adding he was not “overly worried”.

“The US is in a pretty strong situation right now; approaching full employment and real wage growth. Things seem to be picking up, so I think we should still should see an interest rate rise next month.”

Jonathan Marriott, chief investment officer at LGT Vestra, said: “At the moment there is no reason to change our positioning, as we had reduced our equity exposure a while ago.

“Equity markets have already come back though, from the initial knee-jerk falls. I am not about to pile in, but I am equally not about to entirely pile out of equities either.

“I had rather hoped that the equity markets had stayed lower for a bit longer because we then could have added a bit of risk to the portfolio, but we might have to now wait for the Italian referendum for that.”

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