Investors in the US should watch out for multi-nationals, healthcare providers and financial firms in the run-up to the election in November, but one senior figure said the perceived impact of a Clinton/Trump win is “vastly hyped”.
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.
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.”