What a Trump presidency means for your portfolio

Investors did not have to wait long for an outcome to the US presidential election. By the time the UK woke up on Wednesday morning, the writing was on the wall: Donald Trump would be the 47th American president.
The Republicanshave won control of the Senate and the House of Representatives, which means Trump should be able to pass most of his policies with relative ease. These policies are likely to include tax cuts, trade tariffs, deregulation and tighter border controls.
Experts predict that Trump’s measures could lead to a rise in inflation, leading to the Federal Reserve not cutting interest rates as much as had been expected.
The US accounts for about 70 per cent of the MSCI World Index, and so the election outcome will affect almost every investment portfolio across the globe. We look at what a Trump presidency means for global markets and how investors should position themselves to take advantage.
As the election results poured in, the US stock markets reacted with elation. The S&P 500 gained 2.5 per cent on the day, the Dow Jones 3.6 per cent, and the tech-focused Nasdaq 3 per cent.
The dollar also strengthened against other leading currencies and yields increased on US government bonds, which are known as Treasuries. Even the FTSE 100 edged up a fraction,driven by the fact that many of the firms listed are international businesses that get much of their revenues overseas.
Will these gains continue? Historically, the US stock market has performed better under Democrat presidents than Republican ones. Analysis of the US stock market since 1948 by Bowmore Financial Planning found that the S&P 500 gained an average of 55 per cent over four years under Democrat leaders, and 21 per cent under Republicans.
The stock market fell over the tenure of just three of the past 16 US presidents. The worst performance was between 2001 and 2005 under George W Bush, when the S&P 500 lost 21 per cent. In his second term as president, the market fell a further 10 per cent. However, it is worth pointing out that his two terms were bookended by the bursting of the dot com bubble and 9/11, and the start of the global financial crisis, which caused market meltdowns that the president could hardly be blamed for.
Bill Clinton’s second term as president, from 1996 to 2000, was the most successful for the US stock market, which gained 101 per cent, although he enjoyed the boom years of the dot com bubble during his tenure.
Ronald Reagan was the most successful Republican president in stock market terms, as the S&P 500 gained 61 per cent in the four years from 1984 to 1988. The market gained 57 per cent during Trump’s previous stint in the White House, ranking him fifth of the past 16 presidents for market returns.
The fund group Charles Schwab looked at other metrics. Economic growth has generally been stronger under the Democrats, it found. There have been 14 recessions in the US since the Second World War and 12 of these started under a Republican president. However, ten of the slumps also ended under a Republican president, while just four ended under a Democrat.
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The unemployment rate rose under all but one Republican president — Reagan — and did not increase under any Democrat president.
Crucially, number-crunching by Charles Schwab found that $10,000 invested in the S&P 500 at the start of 1948, and left to grow regardless of who was in the White House, would be worth an incredible $37.8 million today, assuming that dividends were reinvested.
The same amount would have grown to $311,765 if it had been invested only during the years when a Republican was president, and to $1.2 million if it had been invested only when a Democrat was in the White House.
Richard Flynn from Charles Schwab said: “While presidents are often quick to take credit for strong stock market performance, or blame their predecessor for poor performance, history shows that they are probably responsible for neither.
“The US economy is a massive and complex system and it is always difficult to tie any legislation directly to economic and market outcomes. The underlying macro and micro forces at work are much better explainers of share prices and the trajectory of the economy.
“Investors would tend to be better off if they stay in the market, regardless of which party holds the White House.”
An “America First” strategy could boost the energy, defence and manufacturing sectors so investing in those companies may be a good option. JJ Kinahan from the trading firm tastytrade said that the aerospace company Lockheed Martin was one to watch and suggested this could be a turnaround opportunity for the aircraft-maker Boeing. In the energy sector he likes Exxon Mobil and the oil-producer ConocoPhillips.
Protectionist measures such as raising import tariffs could, however, stoke inflation as companies pass on higher costs to customers. Retailers, luxury goods firms and car makers could suffer here.
Kirsty Desson from the investment group Abrdn said small and mid-cap companies could fare well in a more protectionist environment because they tend to be domestically focused. The new president wants to cut corporation tax for businesses that make their products in the US.
Desson likes the convenience store firm Casey’s, which also operates a network of fuel stations. “Casey’s operates in rural, small town locations and targets low to mid-end consumers — in other words, voters most likely to benefit from Trump’s Make America Great Again policies,” Desson said.
She also likes the equipment supplier MSA Safety, which generates 70 per cent of its sales domestically. “MSA has exposure to US government budget spending through firefighter and US Airforce contracts, and to oil and gas spending through sales of its gas detection,” she said.
Trump’s enthusiasm for big tech could be a boon for the sector — Tesla and Paypal shares climbed on Wednesday.
On the other hand, it could prove problematic that many of the semiconductor chips and other materials in the tech supply chain come from China, which Trump has pledged to hit with heavy import duties. Susannah Streeter from the wealth manager Hargreaves Lansdown said: “Although a tech rally may be on the way, tariffs could end up having negative consequences for the sector by potentially exacerbating trade tensions with China and disrupting international supply chains for key components.”
Cuts to corporate tax and further deregulation may benefit the financial sector and banks would do well if interest rates stayed higher for longer. Kinahan suggested investing in the banks JP Morgan and Citigroup.
Away from the stock market, oil prices dipped amid concerns about what Trump’s calls for energy independence could mean for the industry. An increase in oil supply from US wells could further dampen the price of the commodity.
The Federal Reserve cut interest rates as expected on Thursday but experts now expect rates to be higher for longer as Trump’s huge spending programme and trade tariffs are likely to lead to a rise in inflation. The cut will mean that the rates paid on newly issued US Treasuries will also fall, which could push up prices on existing bonds which pay higher rates.
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The simplest — and cheapest — way to get exposure to the US stock market is through a low-cost tracker fund. The Vanguard S&P 500 UCITS exchange-traded fund (ETF) tracks the market for a fee of just 0.07 per cent.
But anyone with a global tracker fund will already have a significant portion of their money in the US so it is important to make sure you are not overexposed to the region. There will also be a lot of crossover between the US market and any tech funds in your portfolio, so be mindful of doubling up on holdings.
The US stock market has been on an incredible run as tech stocks have boomed, which has made it difficult for actively managed funds to outperform. Analysis by the wealth manager AJ Bell showed that just 21 per cent of active US funds have outperformed a US tracker over five years, and 22 per cent over a decade.
Investors may find more value in choosing funds that focus on the country’s smaller companies. Darius McDermott at the fund ratings agency FundCalibre likes Artemis US Smaller Companies and T Rowe Price US Smaller Companies Equity, which focus on this end of the market. “Protectionist moves could offer US smaller companies, currently more attractively valued than the Magnificent Seven tech stocks, a stronger competitive edge over international rivals and potentially boost their market share,” he said.
Holdings in the Artemis fund include the protein shake-maker Bellring Brands, the racecourse Churchill Downs, and the discount retailer Burlington. The T Rowe Price fund invests in brands including the scientific equipment maker Bruker, the care company Molina Healthcare and the animal medicine firm Elanco Animal Health.
The Premier Miton US Opportunities fund has no exposure to the big tech stocks and has still delivered annualised returns of 13.7 per cent over the past decade, outperforming the US stock market. Focusing on unloved areas of the market, its top holdings include the events company Live Nation, the engineering consultancy Tetra Tech, and the software firm Manhattan Associates.
Alex Watts from the wealth manager Interactive Investor said the FTF Clearbridge Global Infrastructure fund could be one way to tap into Trump’s spending plans. Its investments include electricity and water suppliers, and firms operating airports and toll roads. About 38 per cent of the portfolio is in the US, with other investments in Canada and Europe. “It’s a defensive fund with a strong, consistent yield of about 4.5 per cent,” Watts said.
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Trump famously pledged to turn the US into the “bitcoin superpower of the world” if he was elected, despite having once said that the cryptocurrency “just seems like a scam”.
The president elect said in August that he would create a national bitcoin stockpile, and the Republican senator Cynthia Lummis added that she would introduce a bill that would require the US government to buy a million bitcoins (it holds about 210,000 at present).
“It feels as though bitcoin and other cryptocurrencies could be a big thing under Trump, and if the Federal Reserve starts using it, that will help to legitimise crypto as an asset,” said Ben Yearsley from the consultancy Fairview Investing.
US investors can already buy ETFs that track the price of bitcoin but the cryptocurrency is largely unregulated in the UK and is considered a high-risk investment — there is no protection if you lose your money.
The bitcoin price reached a record high above $75,000 on Wednesday. “I expect this could push higher, but investors like me, who focus on fundamentals, are still left wondering what purpose bitcoin really serves,” Yearsley said.