4 November 2016

With the US presidential election just days away, speculation and commentary is coming from all directions. Most commentators agree that a Clinton victory is still more likely than not and would be relatively benign for markets. Of course, a Clinton victory is not assured, with Trump closing in the polls in recent days. Perhaps the only certainty in a potential Trump presidency would be uncertainty itself – and there’s nothing markets dislike more than uncertainty. Understandably then, many investors are pondering how a Trump presidency (or even a narrow Clinton victory) would impact their portfolios.

Whilst a Trump win could likely cause significant short term uncertainty and greater volatility accentuating some of the concerns we have held regarding risks embedded in high valuations levels of US assets (both equities and bonds).

There are also some longer term concerns if a Trump presidency was able to implement some of the more extreme policies he has proposed (e.g. significant trade barriers, more isolationist US foreign policy approach, immigration controls).

In recent days, and particularly with the reopening of the FBI email investigation last Friday, the vote has tightened adversely impacting financial markets that had previously priced in a near certain Clinton win.

Despite this we believe our portfolios are relatively well positioned for these challenges in the event of a Trump win.

  • The portfolios already reflect a cautious view on US equities and bonds, based primarily on longer term valuations factors rather than any view about the election outcome.
  • Most portfolios have a reasonable amount of cash that could take advantage of severe market weakness should it occurs.
  • The alternatives exposure is quite significant and should hold up reasonably well in a Trump scenario.
  • Some portfolios have direct and/or indirect gold exposure( through gold equities e.g. Platinum, SLIF).
  • We have some explicit protection via volatility funds and/or put options that would also provide some support during serious weakness.

While we are not dismissing the potential adverse implications of a Trump win, the nature of these events is that attempting to finesse portfolios in the midst of sharp global moves is difficult and often detrimental to performance especially if emotionally driven. We believe it is better to position the portfolio based on the longer term fundamentals and valuation drivers while being prepared to react quickly if those sharp moves create particularly attractive opportunities consistent with that longer term view.

It is worthwhile noting that given our view on longer term fundamentals, we don’t believe a Clinton win would necessarily provide an “all clear” to markets. Having said that a convincing Clinton win would likely provide a relief rally for US equities and the US dollar although we would not expect the magnitude of these to be significant.

If you have any questions or queries in relation to your personal investment portfolio, please feel free to contact us on 07 3391 5055 or via advice@mgdwealth.com.au.

Disclaimer: This communication contains general information only and is not intended to constitute financial product advice. Any information provided or conclusions made, whether express or implied, do not take into account the investment objectives, financial situation and particular needs of an investor. It should not be relied upon as a substitute for professional advice. MGD Wealth, AFSL 222600.