With a month to go until the 2024 US Election, investors and leaders alike are keenly aware of the potential impact the results could have on the world and the broader global economy.
Predicting the outcome of any election is never a good idea, especially as this one is fraught with uncertainty. So, how can investors prepare their portfolios for the biggest election of the year?
Here’s how HL fund managers Ziad Gergi and Steve Clayton are priming their funds and what they think investors should look out for.
This article is not personal advice. Investments fall as well as rise in value, so you could get back less than you put in. If you’re not sure what’s right for you, ask for financial advice.
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The current state of the US economy
The US has a national debt of over $35tn, which equates to over $100,000 of debt per citizen. The national government debt of the entire European Union stands at less than half that of the US.
Concern around these figures is not just the sheer size, but also the fact the country is operating at a deficit – spending more than it receives.
This level of debt also exceeds its annual gross domestic product (GDP). That means they owe more than the economy turns over each year, and this debt is increasing at a faster rate than their economic value.
Despite these numbers, the US is widely considered a capable driver of economic and investment growth.
Trump vs Harris – how each candidate could influence US policies
The reality is that neither the Democrats nor the Republicans have much leeway for fiscal stimulus – whether that’s government spending or tax cuts.
New spending initiatives could require either cutting other programmes or raising taxes if they don’t want to see further deterioration in government finances.
Both are risky political moves.
Rather than a dramatic shift in economic policy, we could instead expect targeted measures based on political preferences.
For example, former president Donald Trump has historically backed tax cuts for corporates and wealthy individuals.
Meanwhile Vice President Harris appears to be leaning more towards rate cuts for the working and middle classes, with potentially higher taxes on corporations. She’s currently serving in the Biden administration, so an enhancement of the current policies feels more likely than a dramatic U-turn.
There are core similarities we can expect from both parties. The Democrats and Republicans both recognise China as a major and strategic rival.
Over the last eight years, we’ve seen tariff hikes, trade wars and political intervention in corporate affairs, especially around technology, between these two major economies. And US-China relations are likely to remain tense.
To the rest of the world, the agenda has also trended towards ‘America first’. Both parties are committed towards initiatives that support and drive domestic success, protect American jobs and strengthen the US economy. These types of policies could affect international relations, trade and more.
How to invest in the US
The HL US Fund is designed to deliver consistent performance during normal market cycles and provide investors with some stability in times of uncertainty.
We avoid making bets, especially around unpredictable events like elections. Instead, we focus on managing risk of the portfolio based on elements we can better assess.
Our portfolio is diversified across four active managers, blending value and growth investment styles. These experienced managers adjust their strategies as market conditions change or evolve. To manage risk, particularly in tech, we’ve added a sector-specific ETF to the portfolio.
How US elections influence global financial markets
The outcome of this election could have significant implications for the global economy.
The US dollar is the world’s primary reserve currency and the US itself accounts for a huge proportion of the value of shares worldwide.
Any shifts in fiscal or monetary policy could lead to fluctuations in bond yields as well as the value of the dollar, which in turn could affect trade, foreign profits, consumer spending, commodity prices and more.
Two of the US’s major overseas trading partners are China and the E.U. While the UK is no longer a part of the EU, it still ranks in the top 10 trading partners with the US and is hugely exposed to what happens over there. Some of this country’s largest companies account in dollars, and others have big swathes of their activities in the US.
How to invest globally
The HL Select team invest in stocks in the UK and around the world, with a big focus on the US in our Global Growth fund.
We try to take the long view, focusing on companies’ fundamental attractions, rather than the headlines on the newsstands. But there are a few things we’ll be keeping an eye on.
As we’ve covered, there’s not much scope for the winner of the election to make bold spending plans. We believe that the next administration, red or blue, will more likely look to crack down on corporate taxation.
Now feels like a good time to examine portfolios to see if the stocks you hold have been paying their taxes. But the right rate for taxes is not the same for all companies.
Healthcare businesses can often get bigger tax breaks for investing in research and development than many other industries, so their taxes can often be low for good reason.
However, if a company has been paying unusually low levels of taxation in recent years, there’s a chance that the conversations between them and the US taxman are going to get tougher in years to come.
The HL Select team will be scouring our portfolios for tax risks.
A Trump administration is likely to take a very different stance toward tackling climate change than Joe Biden did, or Kamala Harris would, if elected.
We expect that the US will be a back-pedaller on ESG issues under Trump.
That’s bad news for businesses that are enabling the path to net zero, and potentially a lifeline for carbon-intensive ones like coal miners and their utility customers. We’re making sure that the HL Select holdings are doing what needs to be done on the path to net zero as economically as possible.
If Donald Trump wins, he will likely be a one-term president. Kamala Harris could serve a second term should she win in November. But these are short periods of time in the context of investments.
While one or the other is in power, technology will continue to advance. Where that leads is likely to have far more impact on investors’ outcomes, which is why the best strategy for investors is to keep focusing on the fundamentals.
How investors can manage the risk of uncertainty
Maintaining a diversified portfolio
The long-term potential of investing in the US can’t be denied. Over the last 10 years, we’ve seen the investment performance of the market grow at a faster rate than the global market.
However, concentration in one market, no matter how successful it might be, adds considerable risk.
Focusing on long-term fundamentals
Rather than trying to predict the election outcome, investors should focus on investments with strong fundamentals.
Companies that exhibit, for example, strong earnings growth, healthy balance sheets or competitive advantages, are more likely to perform well over the long term, regardless of the political environment in the US.
Blocking out the noise
During the run-up to the election, there will likely be market-moving headlines and speculation. These short-term fluctuations aren’t always a reflection of reality.
Investors should avoid making impulsive decisions based on events and hype.
This fund gives investors an innovative way to invest in the US stock market, with stocks selected by a handpicked team of external fund managers.
HL Select is a group of three funds focused on a small number of stocks with long-term growth potential.
The HL Select and HL US Fund are managed by Hargreaves Lansdown Fund Managers Ltd., part of the Hargreaves Lansdown Group.
