How could investments fare under Joe Biden?

interactive investor suggests sectors and funds that could prosper.

With Joe Biden only days away from being sworn in as US president (20 January 2021), how will the investment landscape evolve under his premiership?

It may well smart that at a time when Trump leaves office under an enormous cloud, a more divisive, and to many dangerous, figure than seemed imaginable just weeks ago, the US market hit new highs under his tenure.

The S&P 500 was up 64% (on a GBP total return basis) since his inauguration on 20 January 2017 (to 11 January 2021), ranking fourth behind Ronald Reagan (282%), Bill Clinton (261%) and Barack Obama (243%) for performance out of the six US presidents in the past 40 years. It is worth mentioning that Reagan, Clinton and Obama served longer terms than Trump.

It is highly debatable how much influence any president has on markets, although in an interactive investor website visitor poll* late last year, only 13% thought politics does not influence the stock market (24% said they didn’t know). But changes to US taxation, government spending, trade and regulation spearheaded by the incumbent president can certainly have global reverberations.

Richard Hunter, Head of Markets at interactive investor, says: “Sentiment is generally positive on an outcome that is something of a double-edged sword. On the one hand, the new balance of power is largely expected to result in increased fiscal stimulus and infrastructure spending, but it may also be accompanied by higher taxes and regulation. On the latter, the Nasdaq is under the spotlight as concerns for big tech begin to intensify. In particular, the events of the past week at the White House has led some to conclude that a possible Congressional review of social media underlines the broader concern that for big tech, increased regulation is on the way.

“As for the performance of the market during Trump’s tenure, he did of course inherit an economy which was already poised for recovery following earlier stimulus attempts by the administration (including Obama) to turbocharge economic prospects.”

Lee Wild, Head of Equity Strategy at interactive investor, says: “Biden has fulfilled his role in this election as a safe pair of hands to wrest the presidency from an increasingly divisive Trump. Historically, Democrat administrations have performed better than Republicans, and a promise of economic stimulus would certainly help Biden win over the market.

“However, the president-elect inherits a massively divided country where the Covid pandemic is killing thousands of Americans each day and putting huge strain on hospitals. Bringing the country together again and tackling both the social and economic impact of Covid will require all Biden’s significant political experience to make his first 100 days a success.”   

Biden’s presidency could be a game changer for green funds

Teodor Dilov, fund analyst at interactive investor, says: “Tackling climate change was not high up the list of priorities in the Oval Office under Trump’s tenure, but that’s expected to change once Biden takes power. Biden has already vowed to make the issue a top priority and reverse many Trump administration policies, such as re-joining the Paris Agreement on climate change immediately upon taking office. As such ‘green’ investments could prosper under Biden’s premiership.

“We like Brown Advisory US Sustainable Growth Fund, which excludes companies that defy the United Nations Global Compact Principles; derive any of their revenues from controversial weapons; conduct animal testing for non-medical purposes; own fossil fuel reserves; or generate power from fossil fuels.

“The fund also imposes limits on companies that derive more than 5% of revenues from tobacco, alcohol, gambling and military equipment. The managers then seek to identify primarily US companies that have prospects for above average earnings growth in the future, and effectively implement sustainable business strategies that drive earnings growth.

Healthcare and technology

Teodor Dilov says: “Biden is also expected to see through his campaign promise of protecting and building on the Affordable Care Act (also known as Obamacare) which is likely to benefit pharmaceutical investments. But a divided Congress may stifle some of his more ambitious plans.

“In addition, the tech sector could continue its growth story under Biden with the roll-out of 5G, despite an expected increase in corporation tax - while whispers of a tougher regulatory environment for the tech sector under Biden remains fruitless at this point.

“With a significant exposure to technology and healthcare (accounting for 28% and 15% of the portfolio) Merian North American Equity fund could do well. The fund’s duo of experienced managers, Ian Heslop and Amadeo Alentorn follow the money under a quantitative model to establish what type of stocks other investors are buying and then buying the best ones in those categories. The fund has struggled a bit performance-wise in recent history, but its tech and healthcare holdings could lead a performance revival in the Biden era.”

Performance of S&P 500

Source: interactive investor/Morningstar. Total Returns in GBP. Past performance is no guide to the future.

Notes to editors

* The survey of 1,809 investors was conducted between the afternoon of 19 October to the morning of 21 October

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.