Fund managers are positioning for a boost to cyclical assets such as industrial companies following the US Presidential Election, according to delegates at a recent Investment Week roundtable co-hosted by SPDR ETFs from State Street Global Advisors (SSGA).
Multi-asset specialists discussed how different sectors of the US economy could respond depending on who wins November's Presidential Election.
A ‘clean sweep' victory for either Joe Biden's Democratic party or President Donald Trump's Republicans - giving them control of Congress and the Senate - would make much-needed fiscal stimulus easier to secure, roundtable delegates agreed.
However, Hani Redha, global multi-asset portfolio manager at Pinebridge, argued that the market was in "the early stages of a multi-year expansion". This meant investors should look towards "lagging cyclical sectors" such as industrials regardless of the election outcome.
"Under a scenario where we get a [Covid-19] vaccine starting to get administered, let's say, around the summer of next year, you're going to see a broadening out of the recovery that will benefit those sectors anyway," he said.
Paul O'Connor, head of multi-asset at Janus Henderson Investors, said his team had been taking profits in areas exposed to falling real yields and tilting towards regional banks and value stocks.
Ninety One head of multi-asset income John Stopford added that the "scope for rotation is finally building" in financial markets, with the key drivers of this likely being a Covid-19 vaccine and "having an economy that can move away from online and back to more traditional elements".
Pictet Asset Management's senior multi-asset strategist Supriya Menon said her team had been making similar adjustments. She highlighted potential regulatory headwinds for technology stocks as an issue to watch regardless of who occupies the White House come January 2021.
"I think it is going to be a year of reckoning for tech," she said, citing European Union efforts to increase data protection regulation and OECD work on accounting for and taxing profits from intangible assets.
Technology stocks have been a key driver of equity returns for the past two years. Since the start of 2019, tech giants such as Microsoft and Amazon have seen their share prices double, while Apple's stock is up more than 200%.
"I think the greater the probability of a Biden win, the more scope you have for global cooperation on some of these initiatives," Menon continued. "If Trump retains his position, then there is scope for potential conflict, especially with the European Union as they try to basically regulate US tech champions."
Peter Rutter, head of equities at Royal London Asset Management, added that investors should focus on where the parties' policies are similar, such as healthcare, relations with China, and technology.
Several attendees highlighted the potential for a boost for environmental, social and governance (ESG) investing strategies should Joe Biden be elected. Elliot Hentov, head of policy research at SSGA, highlighted that President Trump's anti-environmental stances had "constrained the growth of ESG investing in the US".
However, should Biden emerge victorious on 3 November, Hentov said the decarbonisation and "greening" of the US economy would likely kick on - with benefits for several sectors.
"Counterintuitively, one of the sectors we like a lot is utilities," he said. "It's an unexciting sector… but we know from the European experience that the regulatory push has actually upgraded a lot of these businesses. Governments were very lavish in terms of extending subsidies, grace periods, and regulatory support in helping these businesses pivot towards different energy sources. We think that is one great example of, whether you get [fiscal] stimulus or not, one sector likely to benefit from the green push."
Hentov concluded: "There will be much more dispersion in terms of equity performances going forward, depending on what the final policy decisions look like. Therefore, particularly around thematic and sector investing, there are a lot of opportunities to take advantage of that dispersion."
For a full write-up of the roundtable, see the 26th October issue of Investment Week magazine.
