US election: The sectors that could suffer

Speaking to FTAdviser, Ian Heslop, who manages the Old Mutual’s £1.6bn North American Equity fund, said his team makes decisions based on investor sentiment, rather than trying to make macro calls by second guessing who will win the presidency and the impact of the outcome.

“Unless you’re some kind of Jedi and you’re using the Force, then you have to use history to decide on certain stocks, but that’s very difficult if you’ve never seen this environment before.”

He said the markets have behaved in a similarly volatile way in the past, but not necessarily for the same reasons.

“We strip it back and try to understand how investors are behaving, as opposed to why.

“I think it’s inevitable there will be a level of uncertainty and volatility in the run up to the election, which will affect specific areas like financial companies and healthcare, while the general view of financial trade between the two presidential hopefuls is very different.”

Bearing in mind the US economy is largely driven by consumer spending, Mr Heslop said one of the big concerns for investors in the US market is if uncertainty causes consumers to “pull in their horns” and stop splashing their cash.

But he said his portfolio will adjust as investors’ reactions change, pointing out there isn’t a lot of concentration in terms of sectors in the portfolio because of the prevailing sense of uncertainty.

When markets are uncertain, defensive stocks will often perform better, but the OMGI manager said in February and March this year people started buying riskier stocks, which are often more geared towards a positive economy.

“This is because the safety stocks like healthcare and consumer staples had got too expensive and the risky ones were very cheap,” he said, adding as investors started moving into the more “speculative” areas, then he followed. 

 The US is like a heavily burdened oil tanker on a calm sea which is very slow to change direction Nick Ford

While he uses a bottom-up approach, Nick Ford, manager of the £200m Miton US Opportunities fund, said there were certain sectors he was watching closely.

He pointed to healthcare, saying Ms Clinton has been aggressive in trying to cut healthcare costs in the past, particularly in areas where there have been inflated prices, adding investors with exposure to this sector will be nervous.

“We are incrementally concerned about what sort of impact a Clinton administration could have on the prices healthcare providers can charge for pharmaceutical products,” he said.

“The price of pharmaceutical products ripples right across the industry, and you could see increasingly negative sentiment for the healthcare space, and portfolio managers could sell down their holdings.” 

Mr Ford said he has not yet reduced holdings in healthcare because his fund has been scooping up decent profits from several pharma companies, but admitted he will look to trim his exposure down if it starts to severely underperform in anticipation of a Clinton presidency.

The Miton manager also said infrastructure holdings, such as highways and rail stocks, could stand to benefit from a Clinton win, while retail and hospitality companies could suffer if she raises the minimum wage.

“Hillary has said she will go after some of the multi-nationals by reforming the tax of overseas income, so you could get a short-term hit to firms like Facebook and Google,” he said, adding however, this could present a buying opportunity because they could become cheaper. 

When it comes to Trump, Mr Ford said there could be a re-examination of the policy relating to the regulation of banks, known as Dodd-Frank, which he said could mean the banking sector would be able to earn higher returns.

Though if Trump wins, Mr Ford said companies which rely on overseas trade could suffer as the borders close, while consumer spending could potentially increase if he successfully cuts income tax as he has proposed. 

Despite this, the Miton manager said the perceived impact of a new president it vastly hyped in America.

“The US is like a heavily burdened oil tanker on a calm sea which is very slow to change direction,” he said, adding this means the generally conservative US voters are unlikely to opt for the radical policies Trump is proposing.

While David Lafferty, chief market strategist at Natixis Global Asset Management, said his fund managers don’t tend to look at geopolitics, they do tend to go where the value is, and are therefore avoiding exposure to utilities or consumer staples.

“The places we have found more interesting have been technology and financials, particularly banks, which have been our biggest overweights.”

While Donald Trump has between 30 to 40 per cent of the population backing him, economy author Harry Dent said he doesn’t think the intention of the presidential candidate is to win.

He said the US is due another recession in the next four years, which he said would be worse for Hillary because she's seen as the establishment.

“So if Trump loses, then Trump wins,” Mr Dent said.