Jupiter Dynamic Bond: comments on the outcome of the US presidential election

Five comments on the US election result by Jupiter's managers.

Ariel Bezalel, manager of the Jupiter Dynamic Bond SICAV fund
Donald Trump’s victory has raised the level of market uncertainty we can expect over the coming months and as such is likely to prove negative for risk assets (equities, credit spreads) in the short term. Conventionally, a risk off environment, in this case the end of the US election campaign resulting in a Trump victory, should benefit US Treasuries short term. However, medium term this is unlikely to be the case since Trump has been particularly vocal on the need to boost fiscal spending, saying he wants, at the very minimum, to double Hillary Clinton’s proposed $275bn infrastructure programme, a measure he said he would fund via debt issuance. A debt-funded infrastructure programme of this scale could help to stimulate the economy and be quite inflationary – an environment that would be negative for rates and fairly positive for equities. Therefore, longer term we expect the US yield curve to steepen.

We did not position our portfolio specifically to benefit from a Trump or a Clinton win. However, generally, it is our belief that monetary policy has reached its limits, whether it be in the US, Europe or Japan among others; future stimulus is very likely to be fiscal in nature. Trump is likely to deliver an expansionary policy to encourage economic growth. It would have been the same if Clinton had won. This shift in thinking about the nature of stimulus going forward was one of the key reasons why we reduced the duration of the portfolio significantly since July from 5.1 to 2.9 years today. We did this mainly by selling our medium and long dated US Treasuries and initiating a short position in the bund (around 10% of the portfolio) back when they were trading with negative yields.

Additionally we have:

• Put in place some credit spread hedges (2.16% North American HY CDX and 2.95% European Crossover)
• Trimmed the longer dated investment grade and high yield bonds we own. 50% of the portfolio has a maturity under 2 years.
• Positions in gold mining convertibles (1.9% of the portfolio). These should help in a risk-off environment.
  

Jason Pidcock, manager of the Jupiter Asia Pacific Income SICAV fund
In foreshadowing this Trump win, investors have been selling out of equities and keeping their powder dry. If this continues, and the fear of a recession under a Trump presidency spreads, we believe it is likely that the US Federal Reserve may well postpone its much-anticipated December rate increase.

Paradoxically, such a scenario might create an ideal environment in which the Jupiter Asia Pacific Income Fund could flourish; bond prices would be pushed up, yields would fall and investors seeking income would be practically forced to continue to search for yield in equities. Then again, what good is outperformance when you’re only able to do so on a relative basis against a turbulent market.

Asian stocks that derive a significant portion of their revenues from the US market may see short-to-medium term volatility, driven by market sentiment. Within our fund, these are mainly IT and electronics companies like Hon Hai, Delta and TSMC, that are based in Taiwan and play a big role in the Apple/iPhone supply chain.

At a country level, we believe the Philippines will continue to be a risk: whether President Duterte likes it or not, the country does have economic ties to the United States. It has one of the largest call centre operations in the world, and American companies are a huge employer in this field. If there is one small consolation for us, it is that Trump’s election means Duterte is arguably no longer the most controversial head of state in the world! Trump, we believe, is likely to spark any number of diplomatic rows as his presidency gets underway, but for the Philippines, we think a lot of the bad news has already been priced in. We remain overweight, but aren’t adding any more positions until we see how things pan out.

Sebastian Radcliffe, manager of the Jupiter North American Equities SICAV fund
The difficulty in assessing the impact of a Trump win is the scope of uncertainty as to what he would actually do. The short term impact is likely negative for equities as the greater uncertainty translates into a higher risk premium. However based on the broad thrust of his comments so far he is likely to initiate substantial fiscal stimulus that could materially accelerate the economy. While the market will fret over the uncertainty, the reality is that there is a material separation of powers where substantive legislative change requires approval of both houses of congress and there are sufficient moderate Republicans to join their Democrat Congressional colleagues in halting some of the more wild eyed initiatives that might come out of the new President.

Charlie Thomas, manager of the Jupiter Global Ecology Growth SICAV fund
Donald Trump’s rhetoric during his campaign will likely place pressure in the short term on renewable energy companies, but looking through the noise, he won’t need to remove clean energy subsidies as the existing policy will in fact already phase out subsidies by the end of his first term, in recognition that the pace of renewable technology progress means that they will largely no longer be required.

While it is still too early to predict the long-term consequences of the election, both in the White House and on Capitol Hill, we are mindful that despite a rancorous campaign, one of the few areas that the democrats and republicans found common ground is the pressing need for US infrastructure investment. This bodes relatively well for companies providing environmental solutions particularly in the water, smart energy and rail transport infrastructure.

Guy de Blonay, manager of the Jupiter Global Financials SICAV fund
Donald Trump’s victory could stall the US Federal Reserve’s plans to raise interest rates further this year as it seeks political clarity from the new administration. The US dollar and equity markets are likely to weaken in the short term while I see gold, the Japanese yen and the Swiss franc rising as they benefit from their traditional role as perceived safe haven assets in uncertain times.