Some extracts from Mid Wynd's Simon Edelsten's view on how to prepare for a Democrat win: (Simon Edelsten is co-manager of Mid Wynd International (MWY) investment trust and the Artemis Global Select fund).
It looks like the Democrats may sweep the Senate as well as the White House. Wall Street prefers a Republican president and certainly a Republican Senate. So with more than half of my global equity portfolios invested in American companies, should I be worried?
Listen to some Democrats and you might think that the banks and big pharma are doomed. Banks have been demonised and pharmaceutical companies are facing enormous pressure to drop drug prices.
On the back of this, bank stocks have been badly beaten up.
As for pharma – Obama had two terms in office and made little progress. Government can negotiate but it cannot dictate drug prices. That said, we have long recognised that with an ageing global population there is an imperative internationally to find ways to bring down the costs of healthcare.
That is why one of our investment themes (taking up around 10% of the fund) is not ‘healthcare’ but ‘healthcare costs’ – we skew towards companies that are finding cost-saving solutions. This includes companies like Becton Dickinson (BDX.N), which manufactures diagnostic equipment to enable speedier and cheaper diagnosis. This equipment can enable lower-cost early interventions.
We might also expect the Democrats to increase expenditure in certain areas – typically infrastructure. Biden has promised to spend $1.7tn making the US a 100% clean-energy economy with net-zero emissions by 2050. Our third biggest theme, after online services, is ‘low carbon world’ and our second biggest holding is Trane Technologies (TT.N).
It is one of our sustainability principles not to hold oil stocks, so we have little anxiety around the impact of a Biden presidency on the American oil industry.
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Finally, in the wake of a Democrat clean sweep we might see more pressure on Amazon (AMZN.O), Apple (AAPL.O), Alphabet (GOOGL.O) and Facebook (FB.O), whose heads have been quizzed recently by an antitrust hearing in the US Congress.
The case against them is not as clear as some politicians might make out, but the combination of their high market power and low tax payments may prompt more action and drag on these stocks. We hold Amazon and Apple at just 2.3% and 1.9% of the portfolio respectively. We are alert to this regulatory risk and will be closely monitoring what happens next.
We have reduced exposure to the US by modestly taking profits in tech but if these stocks fall and continue to produce good results, we may buy back in. We have no problem with the investment case for most but think valuations have become stretched in some cases.
So much for preparing American stocks in the portfolio for a Biden presidency, the advantage of being a global investor is that we can move money elsewhere, too. With the money released from the US, we have increased our exposure to Japan, which now represents 14% of the portfolio.