Stay abreast of COVID-19 information and developments here
Provided by the South African National Department of Health
What Trump at the helm
means for portfolio construction
Alwyn van der Merwe
Director of Investments
Nov 11, 2016
By Monday this week, forecasters were convinced that Hillary Clinton would win the election, and the S&P 500 rallied by 2.2%. On Tuesday – election day – besides the Nikkei suffering a drop and a slight pull-back in the S&P 500, markets didn’t do very much. After a weak opening on Wednesday when the election results were announced, there was more certainty and the S&P 500 went up by 1.1%. So all in all and despite predictions to the contrary, the equity markets globally were relatively calm.
The currency markets, on the other hand, were much more volatile and uncertain. We witnessed several knee-jerk reactions in these markets, including the movements of our own fragile currency, which went up and down by about 10% against the US dollar throughout the election process.
Amid this uncertainty, we believe the question investors should ask is:
What do we know about Donald Trump?
Trump’s campaign slogan was ‘Let’s make America great’ – an internal focus on the US which evidently resonated strongly with the voting public. In the run-up to the election, he was clear in his plans to stimulate the US economy from a fiscal perspective. In our view, over the long term, initiatives such as tax reform and increased infrastructure spending will indeed go a long way to generate growth in the US, which will of course have a positive impact on the markets.
However, his isolationist trade policies and protectionist views remain a cause for concern, especially for emerging markets such as South Africa. If Trump moves forward with policies reflecting his harshest protectionist rhetoric, it will present global macro-economic headwinds and could even lead to recession. It remains to be seen, however, to what extent his campaign rhetoric will translate into actual policy once he is faced with the realities of office. Governing is vastly different to campaigning, making such a worst-case outcome unlikely.
We should also remember that Trump is in the end a Republican, and markets, all things being equal, are likely to respond more favourably to the more market-friendly, less interventionist policy associated with Republicans. Trump is unpredictable and has never held public office, but he is first and foremost a businessman, so his presidency is likely to be friendly to business, even if only in the US.
Will Trump’s election have any impact on the US Federal Reserve’s anticipated interest rate hike at the end of the year? The President-elect has accused Fed chairperson Janet Yellen of keeping interest rates low for political reasons. In our view, as an independent agency, the Fed is not likely to take the Trump factor into account when they have to decide on interest rates early in December. They are likely to interpret economic data, which suggest that the labour market is looking sound, the economy is growing at a rate above 2% and there are certainly signs that inflation is starting to kick in.
What does this mean for investors in terms of portfolio construction?
History has shown that it is always unwise to position a portfolio around a binary outcome for a significant political event, which after all, is based primarily on guesswork. At SPW, we have always constructed our clients’ portfolios based on two factors: valuation and perspective. Macro-events such as the US election usually stir up market volatility which for investors focused on valuation leads to real opportunities to buy attractively priced assets and sell expensive ones. At SPW, we won’t hesitate to put our cash positions to work for our clients when we identify these opportunities.
In our portfolios, we are invested mainly in equities and property as these asset classes would ensure inflation-beating returns over the longer term. The fact that we will now have Donald Trump at the helm in the US does not change our view that these two asset classes will deliver on this promise. Over the short term, uncertainty may lead to investor sentiment weighing against equities and property. It is important to remember, however, that there was much more volatility and stronger market pull-backs after the Brexit vote in June. This suggests that portfolios were cautiously positioned before the US election, despite the fact that most people believed a Trump victory to be impossible.
Investors can also take reassurance from the fact that many of the South African companies we hold in our portfolios are global multinationals that generate much of their profits internationally. So while Trump’s election may have an impact on capital flows, it won’t have a huge influence on the companies we invest in.
A word on bonds – at the start of the year, we added to South African bonds as we thought they were cheap, and we still hold this view. We are underweight in international government bonds, however, as the yields remain low. We remain cautious of international bonds as an asset class.
Increased uncertainty and market volatility are likely to be part of our landscape for a while to come. It may be some time before the impact of the US election on the global economy in general, and emerging markets such as ours in particular, is revealed. Besides the possibility of a December rate hike by the Fed, the other macro-event likely to have an impact on markets is the Italian constitutional referendum scheduled for early December. We will of course communicate clearly with our clients in terms of our views of how these and other events unfold and their portfolio management implications.
Sanlam Private Wealth manages a comprehensive range of multi-asset (balanced) and equity portfolios across different risk categories.
Our team of world-class professionals can design a personalised offshore investment strategy to help diversify your portfolio.
Our customised Shariah portfolios combine our investment expertise with the wisdom of an independent Shariah board comprising senior Ulama.
We collaborate with third-party providers to offer collective investments, private equity, hedge funds and structured products.
navigating the complexities
Sanlam Trustees International
are they a good investment?
The great lockdown:
one year on
Head of Equities
IHG: focus on
quality pays off
Sanlam Active UK Fund
BUDGET 2021: THE RIGHT INTENT,
BUT RISKS ABOUND
Investment Economist at Sanlam Investments
INVESTING IN 2021:
WHAT TO EXPECT
Sanlam Private Wealth
MINING: IS THE
THROUGH THE HYPE
Head of Equities
South AfricaSouth Africa Home Sanlam Investments Sanlam Private Wealth Glacier by Sanlam Sanlam BlueStar
Rest of AfricaSanlam Namibia Sanlam Mozambique Sanlam Tanzania Sanlam Uganda Sanlam Swaziland Sanlam Kenya Sanlam Zambia Sanlam Private Wealth Mauritius
GlobalGlobal Investment Solutions
Sanlam Private Wealth (Pty) Ltd, registration number 2000/023234/07, is a licensed Financial Services Provider (FSP 37473), a registered Credit Provider (NCRCP1867) and a member of the Johannesburg Stock Exchange (‘SPW’).
All reasonable steps have been taken to ensure that the information on this website is accurate. The information does not constitute financial advice as contemplated in terms of FAIS. Professional financial advice should always be sought before making an investment decision.
Participation in Sanlam Private Wealth Portfolios is a medium to long-term investment. The value of portfolios is subject to fluctuation and past performance is not a guide to future performance. Calculations are based on a lump sum investment with gross income reinvested on the ex-dividend date. The net of fee calculation assumes a 1.15% annual management charge and total trading costs of 1% (both inclusive of VAT) on the actual portfolio turnover. Actual investment performance will differ based on the fees applicable, the actual investment date and the date of reinvestment of income. A schedule of fees and maximum commissions is available upon request.
COLLECTIVE INVESTMENT SCHEMES
The Sanlam Group is a full member of the Association for Savings and Investment SA. Collective investment schemes are generally medium to long-term investments. Past performance is not a guide to future performance, and the value of investments / units / unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available on request from the manager, Sanlam Collective Investments (RF) Pty Ltd, a registered and approved manager in collective investment schemes in securities (‘Manager’).
Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. The manager does not provide any guarantee either with respect to the capital or the return of a portfolio. Collective investments are calculated on a net asset value basis, which is the total market value of all assets in a portfolio including any income accruals and less any deductible expenses such as audit fees, brokerage and service fees. Actual investment performance of a portfolio and an investor will differ depending on the initial fees applicable, the actual investment date, date of reinvestment of income and dividend withholding tax. Forward pricing is used.
The performance of portfolios depend on the underlying assets and variable market factors. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-dividend date. Portfolios may invest in other unit trusts which levy their own fees and may result is a higher fee structure for Sanlam Private Wealth’s portfolios.
All portfolio options presented are approved collective investment schemes in terms of Collective Investment Schemes Control Act, No. 45 of 2002. Funds may from time to time invest in foreign countries and may have risks regarding liquidity, the repatriation of funds, political and macroeconomic situations, foreign exchange, tax, settlement, and the availability of information. The manager may close any portfolio to new investors in order to ensure efficient management according to applicable mandates.
The management of portfolios may be outsourced to financial services providers authorised in terms of FAIS.
TREATING CUSTOMERS FAIRLY (TCF)
As a business, Sanlam Private Wealth is committed to the principles of TCF, practicing a specific business philosophy that is based on client-centricity and treating customers fairly. Clients can be confident that TCF is central to what Sanlam Private Wealth does and can be reassured that Sanlam Private Wealth has a holistic wealth management product offering that is tailored to clients’ needs, and service that is of a professional standard.