Three things to watch in the run-up to the US presidential election | AAG Wealth Management

Three things to watch in the run-up to the US presidential election

Posted: September 25, 2020

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Three things to watch in the run-up to the US presidential election

Investors should think strategically rather than politically as the battle to be US president draws near.

The world is watching as the United States gears up for one of the most important elections in its 244-year history. The two candidates couldn’t be more different – leaving investors to weigh the impact of two extremes as the race enters its final stages.
Investing through any election can be nerve-wracking, not least when the stakes are this high. But neutrality is an investor’s biggest asset when political risk elevates market volatility. A diverse portfolio and an impartial mindset can help alleviate the fear attached to either outcome, giving investors relative protection from the uncertainty and unpredictability of the election result.
Here are three things investors should keep an eye on in the coming weeks.
1. As well as the White House, look to Congress 
The contest between the two presidential candidates, Trump and Biden, is undoubtedly the liveliest part of the election. However, it’s just not a question of who wins, but of which party takes control of Congress, as this will set the path for policy and legislation over the next four years.
Congress is made up of the House of Representatives and the Senate: the two legislative bodies are independent of each other and must agree for a policy to become law. This balancing act makes it hard to enact radical change, despite the campaign trail rhetoric.
“Candidates traverse the country making promises and shouting why the other candidate’s election will result in the death of the nation,” explains Greg Padilla from Aristotle, which manages the St. James’s Place North American fund. But due to the structure of US government, “in reality, very few of those promises ever becomes law and the nation continues on”.
As the graphic below explains, which party holds a majority in the House and the Senate will influence the outlook for economic policy and US equities after the election.

2. Expect some short-term volatility, but keep the long-term in mind
Markets are forecasting a spike in volatility in the weeks leading up to and following the election, reflecting the degree of uncertainty about the result and its aftermath. But investors would do better to consider the potential longer-term impact of the result on different sectors of the US economy – and what this means for their investments after the dust has settled on the result.
“Depending on who wins, some industries may be more advantaged or disadvantaged by the victorious administration’s approach to spending, taxes and/or regulation,” explains David Levanson of Sands Capital, co-manager of the St. James’s Place Global Equity and Global Growth funds.
Finance, healthcare and big tech are sectors which could be particularly exposed to potential policy changes. Trump and Biden have – for different reasons – pledged to increase regulation of big tech companies such as Facebook and Twitter, and the two candidates have different attitudes to affordable health insurance and drug prices. With holdings across all three areas, Greg Padilla isn’t worried.
“Quality businesses adapt,” he says. “Political winds blow from all points on the compass and have since our founding. We believe good businesses can adapt and prosper regardless of the prevailing winds.” David Levanson agrees. “We are unlikely to make any major changes to portfolios based on our current thinking about US election dynamics.”

3. Foreign policy? Think global investing 
The election result will affect diplomacy on the global stage – including the relationship between the US and China. But global investors can look further afield and at new opportunities that may arise.
Investors are assessing how the election result might affect countries across Asia Pacific – including export heavyweights like Japan, South Korea, Singapore and Taiwan.
“Developments around technology, trade and supply chains will be important for the whole region,” notes Alistair Thompson from FSSA, manager of the St. James’s Place Asia Pacific fund. “A continued backlash against China might well benefit other countries in the region.”
After years of outperformance by US equities, and the remarkable recovery of the FAANG stocks on the S&P 500 since March, there is a view that rotation in favour of European stocks might be overdue.
“The uncertainty around the outcome of the US election has been a trigger point for some international investors to bank some profits and diversify into European and Asian equities,” notes Martin Skånberg from Schroders, manager of the St. James’s Place Managed Growth fund. “After two years of solid outflows, European equities experienced net inflows over the summer period.”
European investors are also in a good place to respond to shifts in demand that may happen as a result of the election. Healthcare – a key issue for both candidates – happens to be the largest sector within the MSCI Europe Index. “We remain positive on the sector’s prospects overall,” says Skånberg.
Over an investor’s lifetime, the political landscape goes through many cycles, and political risks ebb and flow. A well-diversified portfolio remains the best way to counter the volatility created by the outcome of the US presidential election, Brexit or any other political event.
Aristotle, Sands Capital and Schroders are fund managers for St. James’s Place. Where the views and opinions of our fund managers have been quoted these are not necessarily held by St. James’s Place Wealth Management.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and the value may fall as well as rise. You may get back less than the amount invested.

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