US ELECTION BULLETIN
This has become a very divisive election. It appears neither candidate is well liked and it sometimes feels this will be a vote for the lesser of two evils. However, it is a binary result: one of them has to win. According to the major polls, Hillary Clinton has a narrow lead over Donald Trump. Although, as the Brexit and Scottish Independence votes show, the polls can get it markedly wrong so nothing should be taken for granted.
This campaign has at times been an ugly fight for the lost middle class, a demographic that believes it has been standing in line for the great American dream for a very long time and feels it slipping ever-further from its reach.
We believe that one thing is pretty certain: a Clinton victory would see a continuation of the current regime with the Federal Reserve remaining the stronger driver of investor sentiment. This outcome is likely to have a minimal impact on your investments.
The more important consideration is what a Trump victory would look like.
America first
According to the Committee for a Responsible Federal Budget, Trump’s pledges could increase the budget deficit by some $14 trillion including $12 trillion of tax cuts for companies and the super rich.
Trump’s primary aim is to reinvigorate the manufacturing heart of America, which employs the largest proportion of the “lost middle”. He has railed against trade agreements as disadvantaging domestic production, and proposes a trade war with China and Mexico.
But his policies – which aim to encourage companies to onshore manufacturing – will increase costs without increasing employment. American manufacturing output has increased steadily since the 1970s but employment has not increased at the same pace due to automation.
What does a Trump victory mean for investments?
A Trump victory is likely to drive inflation up but employment down leading to a recession two years into his presidency. The immediate impact will be an increase in risk aversion and volatility.
Given the extremely binary nature of the election your portfolio needs to be able to survive either outcome. It is therefore essential you are invested in a well diversified proposition that manages the risks of the potential outcomes. The Openwork Graphene Model Portfolios invest across a wide range of asset classes, sectors and companies and aim to deliver the highest level of performance for the risk you are prepared to take (based on your Attitude to Risk).
It is also important that your underlying US equity exposure is actively managed so your manager can avoid companies that are most likely to come under pressure or which look expensive as other investors run to them in the search for safety.
The value of your investments and any income from them can fall as well as rise and you may not get back the original amount invested.
