The US electorate have made a break with tradition, choosing a man with no prior political experience as the 45th President of the United States of America. Many talking heads promised volatility but the backlash from stock markets around the world hasn't materialised. What does this election mean for investors and where should they look for opportunities?
It isn’t all doom and gloom. Far from it. Aside from the specific areas in the US that may benefit from President Trump here are 6 long-term trends that you can exploit today.
All the fund selections are based on long-term trends that we highlight regularly. Long-term trends have greater potential for investors, especially in the current environment of short-term uncertainty.
Trend 1: Small company outperformance
Liontrust UK Smaller Companies: +6.5% (YTD)
Funds targeting smaller companies give investors the opportunity to access dynamic long term growth stories. Smaller companies, unlike their slower, larger counterparts, are more nimble and better able to respond to changes, such as the Brexit vote or President Trump. The Liontrust fund is attractive because of its relatively high allocation to small, dynamic tech and biotech companies: the leaders of the future. You don’t find the next Apple or Microsoft by investing in Apple and Microsoft.
Trend 2: Reform unlocking potential
Jupiter India: +34% (YTD)
India will soon be the biggest country in the world by population, and is set to become the world’s third largest economy by 2030. India is already the fastest growing major nation, despite a terrible infrastructure and stifling bureaucracy (more on that here). Indian GDP per head is just one-fifth the size of China, highlighting the huge potential waiting to be unlocked is huge. Initiatives such as the goods and sales tax (GST) and clamping down on the grey economy by removing 500 and 1000 rupee notes from circulation show the commitment of the government to reform. Add to this fund in times of weakness.
Trend 3: Value investing
Schroder Recovery: +26.4% (YTD)
Buying companies that are unjustifiably cheap (Value investing) has a great record of outperformance over the long term. But Value investing as a strategy has underperformed Growth investing (buying large, established companies that provide steady growth) over the last 10 years. A turnaround is coming and we’re already seeing a move away from large growth companies, so-called “bond proxies”.
Trend 4: US dollar strength
M&G Global Macro Bond: +25.4% (YTD)
In times of stress or uncertainty the US dollar is perceived as a safe haven (unless that stress is the US. In which case, it’s been the yen). Still, the dollar remains the reserve currency of the world. This fund has the flexibility to invest anywhere but has favoured US dollar exposure, which currently stands at 71%. This has worked well in the past and will also be valuable for sterling investors given the weakness of the pound.
Trend 5: Asian opportunities
Newton Asian Income: +32.3% (YTD)
The Asia region has great potential for income investors. A growing middle class will drive consumption and there is huge scope for productivity enhancements. Though globalisation is on the retreat, the proportion of middle-class consumers in Asia will continue to grow, which is positive for funds exposed to the region. And, for sterling investors, a weak pound adds additional benefit.
Trend 6: Japanese Smaller Companies as our "Trade of the Decade"
Baillie Gifford Japanese Smaller Companies: +32% (YTD)
Japan is another country supported by a strong reform agenda and some areas still look relatively cheap. It has a huge pile of debt but the central bank is committed to dealing with the situation (although how successful it will be only time will tell). Japanese smaller companies – our "Trade of the Decade" – have been a great way to access the Japanese market and they still represent a good opportunity.
ACTION FOR INVESTORS
- As investors, we should feel calm (in sharp contrast to the politicians). The stock market didn’t do what many predicted…
- …which again illustrates the problem with knee-jerk reactions to events.
- The world still spins and money is still being made: “keep calm and carry on (making money)”
FURTHER READING
Data period: 31/12/2015-10/11/2016