Despite the fact that Donald Trump remains a deeply polarising figure, markets have so far reacted positively. We asked leading wealth managers and financial advisers for their take on Trump’s first month in office, and what effect he might have on UK equities.
Richard Stammers, Investment Strategist, European Wealth
There has been much wailing and gnashing of teeth over the possible impact of President Trump’s policies. We prefer to focus on the underlying economy which, in the UK, remains healthy. In addition, some of his policies are expected to boost US growth – although we feel that some investors may be expecting things to happen sooner than may prove to be the case. A stronger US economy should lead to a stronger US dollar. This is likely to lead to a correspondingly weaker pound for our exporters and may also lead to some upward pressure on inflation. However, we do not expect UK interest rates to shoot up any time soon. This means that equities should remain the asset class of choice – with equity income remaining popular in such a low yield environment.
Paul Willans, Managing Director, AJ Buckley Asset Management
As the reverberations of ‘Project Fear’ dissipate – at least for the moment – UK stocks continue to bask in the warm waters of the so-called ‘Trump trade’. Following a slight pause for breath, the FTSE 100 continues to extend its winning streak, buoyed by a rally in mining stocks, as investors bet Trump’s tax reform plans will bolster economic growth. However, with Trump’s presidency already becoming immersed in crisis, it remains to be seen what the short-term economic and currency consequences will be for UK equity, and equity income.
Gene Salerno, Head of Investment Strategy, Kleinwort Benson
Donald J. Trump – rank outsider – was elected President of the United States. Let’s assume you actually knew this was going to happen: what would you have done? Sold risk-assets? Gone long safe-havens? Expected volatility to surge? Wrong, wrong, wrong. Equities? Up. US dollar? Stronger.
Government bonds? Sold off. The VIX? Way down. Lesson: trying to divine the future of markets based on geopolitics is nigh impossible, if not useless.
To the degree that geopolitical or other events impact the fundamentals, we pay attention however. To the degree they do not, we remain positioned to take advantage of any excessively bearish sentiment by taking contrarian positions. We remained risk on throughout 2016 as the fundamentals remained supportive, and this continues into 2017. Given relative valuations, we have only last month increased our allocation to UK equities at the expense of the US.
Kevin Ferriby, Founder, Informed Financial Planning
The market is currently viewing the Trump election as growth-friendly, with fiscal stimulus taking over the baton from central banks after years of highly accommodative monetary policy. Trump’s clearest initiative is to support business in America, with early evidence of jobs being redirected internally. Trump seems mainly focused on manufacturing jobs, which should be no major threat to the UK. However, the support of business in America could be a negative for UK companies with a high proportion of revenues in the US, such as a number of large FTSE 100 companies and traditional dividend payers in the UK.
Matthew Clark, Managing Director, Seabrook Clark
In the short-term, the Trump Presidency has buoyed UK and global equity markets with potentially reflationary announcements. These have included shifting the focus from austerity, debt, and deflation, to growth and inflation with a significant inflection point in the yield curve.
Longer term, as Trump’s irascibility and protectionist policies are exposed, with reality failing to match heightened expectations, volatility and a market correction are likely. In particular, most global markets are currently at historical highs and valuations in most sectors look stretched.
This may tip the balance in the UK towards more domestically focused companies, which could surprise to the upside if the UK economy exceeds muted Brexit expectations.
The view from BlackRock’s UK Equity Income team…
There is currently a lot of uncertainty around US President Donald Trump’s agenda, its implementation and timing. However, this is just one of many issues that UK equity investors must consider in 2017, with continued Brexit negotiations and European elections likely to create further volatility in financial markets. This complex economic and political backdrop is when a stock-picking approach can come into its own. It is crucial to focus on identifying well-managed, cash generative companies that can succeed in the medium and long-term and, to that end, we concentrate our portfolio in around 40 stocks that we believe best demonstrate these characteristics.
Understanding the macro backdrop is important but is not central to our strategy given our ability to find plenty of world-class, global companies in the FTSE 100 and 250 that have strong balance sheets and that can generate sustainable cash flow. We expect volatility is likely to persist throughout 2017 and beyond, providing us with opportunities to buy these companies at attractive prices. Identifying these advantaged companies and avoiding companies where balance sheets are stretched or where there are structural challenges is key to addressing investors’ income and capital requirements over the longer term.