Harris or Trump: funds to play the US election result

The upcoming US presidential election could result in a significant change in both domestic and foreign politics and economic policies, potentially affecting investment strategies and portfolios.

At the time of writing, polls reveal very little difference in odds for the two candidates, and it seems likely that the outcome will come down to a handful of swing states, although much can change in the final days and hours.

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While elections may not necessarily have much of an impact on stock prices, there are some areas of the market that might be impacted by proposed policies from both parties.  

Investors think that Trump’s policies for further deregulation of some industries such as financial services and fossil fuel energy, and corporate and personal tax cuts should be positive for equity markets in general. However, more protectionist policies including higher tariffs, especially for China, could be risky for companies with global supply chains, such as in the technology and consumer sectors.

Under Harris, tailwinds could be felt by companies benefiting from climate and clean energy initiatives, such as the Inflation Reduction Act, already pursued by the Democratic government. Stricter regulations are expected for financial services and fossil fuel energy, but Harris’ recent change of tack on fracking (a key issue in swing state Pennsylvania) shows her policies are not yet crystal clear.

One area that is not clear is the outcome for one of the most critical sectors - Technology, with business leaders publicly divided between supporting Harris or Trump. As the former Attorney General of California, there’s some perception of Harris as being friendly towards and established within Silicon Valley. While her policy approach to tech isn’t yet fully known, Harris has a long-standing relationship with many important figures in the industry and clearly tech stocks performed very strongly under Biden and Harris’ tenure.

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Whatever your view on markets and politics, maintaining adequate portfolio diversification across sectors and market cap, and avoiding strong portfolio biases, should help investors successfully navigate uncertainty and market volatility as well as generating positive outcomes.

While some policies and rhetoric have alarmed voters in the run-up to the election, the degree to which more extreme policies are implemented by the winner will be very much contingent on either side winning by large margins in the House and Senate – which many consider unlikely at this stage.

Broader exposure to US blue-chip stocks

The S&P 500 is dominated by the so-called Magnificent Seven largest technology companies that make up around 30% of the index.

If you're invested in funds that track the S&P 500, your portfolio may be too concentrated and greatly impacted by fluctuations in tech stocks.

By enhancing diversification and reducing concentration at the stock and sector level, the Invesco S&P 500 Equal Weight ETF Acc GBP (LSE:SPEX)provides equally weighted exposure to US blue-chip stocks that make up the S&P 500 index.

It offers greater exposure to smaller stocks and stocks with lower valuations, providing a better diversified approach to investing in US stocks, which could lead to potentially higher returns. It is competitively priced with an ongoing charge of only 0.20%.

More volatility and heightened geopolitical risks

Election uncertainty could bring market volatility, with both parties potentially triggering risk-off events. Whether its Trump with a tougher stance on trade and tariffs, or Harris with higher taxes on corporations and the wealthy.

Investors feeling nervous about where markets could be heading after the elections could consider investing in gold via iShares Physical Gold ETC GBP (LSE:SGLN). In the past, gold has performed well relative to equities and other risk assets during periods of extreme economic turbulence, market volatility and high inflation. As such, it’s widely considered a safe-haven asset.

Over the longer term, the outlook is positive for gold as lower interest rates and expectations for a weaker US dollar should increase gold’s appeal as it is priced in dollars.

Smaller companies

Smaller companies are likely to benefit from Trump policies as they have greater exposure to their own domestic economies, and are less exposed to global trade, which could be hurt by growing protectionism from both parties. Historically, over the longer term smaller companies have outperformed the broader market. In addition, lower interest rates and moderating inflation should provide a further boost for small-cap stocks.

Artemis US Smaller Companies fund provides investors with exposure to the best of America's innovative, entrepreneurial and fast-growing small companies. It has a significant level of exposure to consumer-related companies. Industrials, Financials, Consumer Discretionary and Healthcare account for more than 75% of the portfolio. The fund is managed by Cormac Weldon who is head of the US equity team at Artemis and has an excellent long-term track record of delivering performance throughout different market cycles. With a focus on long-term capital growth, investing in US smaller companies is a great choice for longer-term investors.

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Infrastructure

Spending on infrastructure has been the key policy agenda for both Trump and Harris during their respective 2016 and 2020 campaigns, recognising the need for further improvements and increased investments.

For example, the Infrastructure Investment and Jobs Act (IIJA), adopted by the US Congress in November 2021, provided $550 billion in infrastructure spending over the rest of the decade.

As such, it is expected government funding is likely to continue supporting infrastructure projects regardless of the election outcome.

FTF ClearBridge Global Infrastrcuture Income fund is targeted at investors with two primary objectives – reliable income generated from dividends of underlying holdings and capital growth above the level of inflation over five years. The fund invests in a diverse basket of global listed infrastructure assets in various sub-sectors such as water utilities, gas, electricity etc. The portfolio is also spread across different geographical areas, with the US (40%), Canada (13%), Spain (12%) and the UK (9%) the top three country weightings.

The fund is run by the highly regarded and well-resourced infrastructure team at ClearBridge Investments. The managers run a concentrated portfolio of around 40 holdings. Historically, listed infrastructure has offered investors characteristics of higher dividend yield and lower volatility compared to global equities, as well as exposure to inflation-linked revenue streams. Current yield is 5%.

Energy transition

The Democratic Party has made significant commitments to green policies such as the Inflation Reduction Act, which commits billions of dollars of government support and investments to boost sustainable economy and cut greenhouse gas emissions. Under Harris, such policies along with stronger environmental regulations are expected to continue presenting opportunities for long-term investors.

In contrast, the Republicans take a more measured approach to climate change. During Trump’s first presidency, there were significant actions against green policies such as withdrawal from the Paris Agreement on climate change.

Despite concerns about the potential reversal of green policies with Trump in power, there is a strong consensus that energy transition is expected to continue over the long term given the recent geopolitical conflicts and resultant energy crises.

Polar Capital Smart Energy fund, spearheaded by seasoned manager Thiemo Lang, may fit the bill. Prioritising decarbonisation and electrification in the future energy sector, the fund has a long-term outlook that aims to capitalise on the global shift towards a more sustainable future.

The fund strategically aligns with the transition to cleaner energy solutions.It invests across four investment clusters: clean power generation, energy transmission, energy conversion and storage, and energy efficiency, the latter constituting 40%-50% of holdings. The current portfolio includes 43 holdings, with a 55% allocation to the US and a 10% allocation to Japan.

Anticipating favourable trends in clean energy, the manager predicts a shift from 26% to 90% renewable power generation by 2050. Current focal points for the fund include big data, energy efficiency in industrials, and silicon carbide semiconductor materials in order to capitalise on such future trends.