Stocks and sectors to benefit from a Clinton or Trump US win
The much anticipated race to the White House comes to a conclusion on 8 November 2016 and whether Hillary Clinton or Donald Trump succeed will present opportunities for UK investors.
YourMoney.com spoke to fund managers to find out the stocks and sectors that could benefit in the case of a Clinton win and those that are likely to prosper under a Trump presidency.
While the US election has dominated the press for much of this year, Patrick Close, co-manager of the Neptune US Opportunities and manager of the Neptune US Mid Cap funds, says the anticipated impact of the election on the market has been “overestimated”.
“It is possible that a Trump victory will result in some market volatility in the short-term because his views and policies are so different to what we’ve been used to over the past two presidential terms,” he says.
“Markets hate uncertainty, and a Trump victory would undoubtedly raise some questions. However, we do not believe there will be a major impact on economic fundamentals in the immediate term.”
However, in the long-term, he says certain sectors will incrementally benefit or suffer irrespective of who’s elected.
He believes the defence and infrastructure-orientated sectors will be potential beneficiaries of either a Clinton or Trump victory though “a win for the latter will have a slightly more positive impact on these sectors.”
Conversely, healthcare is a sector that may face headwinds – again whether Clinton or Trump are victorious”, he adds.
Dan Mahony, healthcare fund manager at Polar Capital, says healthcare has massively underperformed over the last year due to the headwinds of the election, but no matter who’s elected, the sector stands to benefit.
“The important thing about healthcare in the low growth world is that we have more people retiring, so there’s an ageing population and conversely, this is driving demand for healthcare. There’s the question of how the government will pay for that, but if investing in things that reduce costs and improve quality, then there will be long-term secular growth and a predictable cash flow,” he says.
He believes that due to the demographics, whether Trump or Clinton win, we could see a push towards an increase in budget in this sector with stocks in the life science tools such as equipment for laboratories and biotech doing particularly well.
He lists Medtronic, the largest medical technology firm in the US which has “the best CEO” and because it “understands costs pressures” to form part of the solution not the problem.
Mahony also lists Novartis, a pharmaceuticals company which had a couple of issues in the last two years, particularly a heart drug that was written off, but now stands at a decent price and is developing immune-oncology drugs that enable patients’ own immune system to fight off diseases.
“You need the right sort of stock to take advantage of the growth trends. The S&P has 14% in healthcare, so there’s no reason why you can’t replicate that in your portfolio,” he says.
For Close, investors need to be particularly selective when it comes to healthcare. This is because Clinton historically hasn’t been a friend of the pharmaceuticals sector, stemming back to Hillary Care in 1993.
“Her comments on price controls last year has led to a lot of selling in pharma and associated sectors, and we anticipate more risk to the downside in the lead up to and after the election. Exactly what she would do remains to be seen, but at the moment you have to be extremely selective. Trump is himself committed to taking action on drug pricing, so it appears that either outcome could put pressure on certain companies.”
However, he says that industry-leading companies that develop specialist treatments for diseases such as cancer are less likely to be impacted by drug controls, but companies involved in more generic areas could come under pressure. He will be keeping an eye on attractive entry points for high quality companies, particularly those that are insulated from drug pricing controls.
“One such example is Zoetis, which we have recently added to the portfolio,” he says.
“It produces medicines and vaccinations for pets and livestock. While it sits in the healthcare sector and has a similar margin structure to the big names, it is very unlikely to be impacted by any price controls as its target market is animals rather than humans. It’s a classic case of the baby being thrown out with the bath water – we have seen a lot of wholesale selling of pharma ETFs, which creates opportunities for active stockpickers like us. We will be on the lookout for more of these.”
Hugh Grieves and Nick Ford, co-managers of the CF Miton US opportunities fund, believe healthcare is not a safe bet.
The managers believe a Clinton win could lead to a massive sell off in the healthcare space as the presidential hopeful has already attacked drug company’s pricing so “she’s likely to go for these companies” leading to negative sentiment in the sector.
Further, the pricing pressure is “likely to increase in the next couple of years” for companies such as Zimmer and Medtronic and as such, the managers have already reduced their healthcare holdings.
They’ve also reduced holdings in consumer staples but say the industrial space and transport is looking good at the moment following a tough year last year. They list J.B Hunt Transport Services as the valuation is cheap and fundamentals are picking up as energy companies spend more.
Ford says: “In the case of a Trump win, consumer spending could be perceived better so retail and restaurants are likely to do better as he’s looking for a fairly radical move on tax rates where lower earners pay no tax and middle earners pay a reduced rate.”
They add that in either a Trump of Clinton win, infrastructure would benefit as both presidential hopefuls are “keen to build.”