US fund managers plan for Trump victory

The US election pits Mr Trump against Democrat candidate Hillary Clinton on November 8. Mrs Clinton remains the favourite, but managers are less keen to rely on polls following election surprises of recent years and, as a result, are seriously debating the effect of a Trump presidency on risk assets.

The Republican candidate’s series of unconventional proposals – among them building a wall between the US and Mexico – have made this task more difficult than usual.

“It is possible a Trump victory will result in some market volatility in the short term because his views and policies are so different to what we’ve been used to over the past two presidential terms,” Patrick Close, co-manager of the £276m Neptune US Opportunities fund, explained.

“Markets hate uncertainty, and a Trump victory would raise questions. However, we do not believe there will be a major impact on economic fundamentals in the immediate term.”

Despite this, Mr Close said a victory for the Republican candidate could be more beneficial from an equity standpoint, given his fiscal policy and the potential benefits for defence companies.

Mrs Clinton has proposed a $275bn (£210bn) infrastructure plan, but Mr Trump said last week he intended to double this, although his views on the topic have been inconsistent.

“[A victory for Mr Trump] will probably be positive for risk assets. He has talked about a more expansive fiscal policy,” Mirabaud chief economist Gero Jung said.

But Nick Ford, co-manager of Miton’s £184m US Opportunities fund, said a Republican victory could initially cast a shadow for investors and said Democrat success would be preferable.

“A Clinton win would go down better,” he said. “Mr Trump has made some protectionist noises that would spook markets, although he has said he would simplify the tax code, which would be good. Mrs Clinton will be seen as a relatively safe pair of hands. The main drawback is she is more likely to pursue redistributive tax policies.”

One area where managers have concerns is healthcare, a sector that has already been hit by Mrs Clinton’s campaign commitments last year.

“Mrs Clinton’s comments on price controls have led to selling in pharma and associated sectors, and we anticipate more risk to the downside in the lead-up to and after the election,” Mr Close said. “What she would do remains to be seen, but at the moment you have to be extremely selective. Mr Trump is also committed to taking action on drug pricing, so it appears that either outcome could put pressure on certain companies.”

Mrs Clinton has warned a typical “senior” on Medicare spends more than $500 of their own money each year on prescription drugs, while the largest pharmaceutical companies are “together earning $80 to $90bn per year in profits at higher margins than other industries”.

This focus has created opportunities in related areas. Simon Edelsten, manager of the Artemis Global Select fund, has added medical devices maker Medtronic and data provider IMS Health to his fund on the view that both candidates have committed to improving US citizens’ access to healthcare.

Meanwhile Mr Close has invested in Zoetis – an animal medicine and vaccination firm that was caught up in the recent sell-off of the sector.

Despite such concerns, managers have downplayed the longer term impact of the result.

Giles Parkinson, global equities manager at Aviva Investors, said the “ingrained advantages of the US... will outlast any single presidency”.

“First, 44 per cent of sales by S&P 500 companies are from products and services produced or sold outside the US,” he said. “Neither candidate will affect how often Brazilians clean their teeth with Colgate.”

Key Numbers

$80-90bn per year: Mrs Clinton’s estimate of yearly profit levels for the largest pharmaceutical companies

44%: S&P 500 sales outside the US

The candidates’ key ideas

Clinton proposals

Implement a “fair share surcharge” on multi-millionaires and billionaires, and fight to ensure the wealthiest Americans do not pay a lower tax rate than the middle class.

Pass a plan to invest in areas including infrastructure, manufacturing, research and technology.

Reduce the cost of prescription drugs.

Trump proposals

Simplify the tax code, using a system with four brackets – 0 per cent, 10 per cent, 20 per cent and 25 per cent – instead of the current seven.

Reform a US-China trade deal by declaring China a currency manipulator and other steps.

Require price transparency from all healthcare providers, especially doctors, clinics and hospitals.