I came across an old Polish proverb recently: ‘Not my circus, not my monkeys!’ It is a useful way of saying something is not your problem so you are not getting involved.
The election in the US is often called a political circus. Whether it is as entertaining as a normal circus is another matter. You may take the view that there are too many clowns. But, as a global equity manager, I say it is not my circus, not my clowns, monkeys or whatever other act you might want to consider.
This ambivalence may come as a surprise to those who want to know how investors might shape their portfolios to benefit from a Democrat or Republican victory in the White House and Congress.
We are doing nothing. But that does not mean we are ignoring what is happening. Elections kick up opportunities without you having to be a psephologist or Mystic Meg.
Surprise, surprise?
First, a reminder of why it is risky to make big investment decisions on election result forecasts. This is the year that half the world goes to the polls and if we have not learned already from Donald Trump’s initial victory and Brexit about the power of elections to surprise, just look at some of the big political stories of 2024 so far.
In India, after a six-week-long process, the 640-million-strong electorate shocked the world when they severely curtailed Prime Minister Narendra Modi’s power, forcing him – 63 seats down – to form a coalition government.
Mexico went the other way, giving the ruling party a landslide victory and supermajority that could enable it to change the constitution, causing initial panic in the markets.
And then there was France, where one moment it looked like Marine Le Pen’s far-right party might win power, only for the left and centre to rally.
Can you believe it?
Even if you correctly anticipate the result of an election, there is the small matter of how what was said on the stump translates to actual policy. This is particularly the case with Donald Trump, who, for instance, is threatening a 10% tax on all imports but possibly as much as 60%. It all depends on his mood.
Even when the president decides what they are going to do, they need the backing of the Senate and Congress. Barack Obama was a popular president for much of his time in office but he struggled to get any of his policies enacted. There are few foregone conclusions.
So it would be foolish in these circumstances to invest based on this kind of speculation. We might, for instance, buy shares in US-based solar panel manufacturers on the basis that tariffs on Chinese imports will finally make them competitive. But if these companies are unprofitable without tariffs then why would I want them near my portfolio – especially when those tariffs look so uncertain? As a global manager, I have many companies that are much better run to consider.
This is not to say that politics is irrelevant. There are issues like regulation, for instance, that may pose a challenge to some companies. Think of Meta and allegations that its platform was misused to influence the previous election. Or consider the monopoly powers some of the tech mega-caps now have. Regulators may come after them at some point. And the regulators themselves are often directed from Washington.
But such big threats should always be a consideration for long-term investors – not something you think about because an election is imminent.
You might think the same of international companies. China has a $250bn trade surplus with the US. Mexico’s is over $150bn. A big hike in trade tariffs could affect certain companies in these countries. But these are threats we consider whenever we buy shares.
Opportunities
Of course, not everyone subscribes to this approach. And here is where opportunities arise. In June, during the French election, shares in the French construction company Vinci fell nearly 15% in a fortnight on fears that a Le Pen government would renationalise toll roads – a major source of its income.
We thought the concerns were overly discounted in the valuation and bought the shares. Even if the roads were brought under government control, we took the view that Vinci would be compensated – this is not Russia, where one might be more concerned about state appropriation.
Similarly, US elections can present challenges for pharma and health insurers. There is usually speculation that a change of government will result in stricter regimes and cost controls.
In the US we have been able to add to our positions in United Health Group and Elevance Health more recently in a similar way. As speculation mounted that Joe Biden would stand aside for Kamala Harris, throwing Trump’s likely victory back into serious doubt, shares in Elevance sank nearly 10% – but they have already recovered.
Too often, as a fund manager, I find companies whose shares I would like to buy if only they were cheaper. Sometimes election volatility creates the opportunities to do just that. I am happy to accept the chance.
Alex Stanić is head of global equities at Artemis and lead manager of the Artemis Global Select and Artemis Global Focus strategies. The views expressed above should not be taken as investment advice.