Portfolio managers hold fire on Trump trades
By: Simon Doyle
Market strategists and money managers reassessed their positions after Donald Trump’s surprise victory did not shock global markets as anticipated.
While portfolio managers were positioned for a Hillary Clinton victory, the markets have been stable amid a clear, uncontested election result and a pro-business president. The relative calm has dispelled Trump trading fears.
“We’re trying not to make a lot of moves,” Tim Pickering, founder and CIO of Auspice Capital Advisors, told Advisor.ca Wednesday morning. “We reduced a little bit of risk overnight, modestly. We exited some long exposure in the equity market. We’ve reduced some currency risk.”
Pickering’s firm had been short the VIX, Wall Street’s so-called “fear gauge,” and took that position off overnight when Trump won. “We covered our short. We’ve been short for a number of months and it’s been a very profitable position,” he said.
He expects Trump’s victory to be slightly positive for oil prices amid the uncertainty surrounding Trump’s energy policies.
“I believe there’s going to be a risk premium associated with oil because of the unknown aspects of Donald Trump, a similar risk premium you see during times of crisis or times of war,” Pickering says. “How to quantify that, I’m not sure.”
He continues to be tilted to the long side of commodities, he added, including energy and precious metals. “I think we’re in for a lot of equity volatility,” he said.
The Canadian dollar declined to 74.38 cents U.S. on Wednesday morning as crude oil prices dipped, and closed the day at 74.75 cents U.S.
Paul Taylor, chief investment officer of asset allocation for BMO Global Asset Management’s Canadian division, said his team had positioned for a Clinton victory and a split Congress.
“But we certainly had considered the likelihood that it could be a lot closer than people thought. For instance, we actually bought puts on the SPY [S&P 500], on the U.S. market, on Monday, knowing that it was going to be very close. So we did buy some portfolio insurance as a precaution,” he said.
Taylor will be watching closely now for signs that Trump adopts a statesmanlike tone and selects a credible cabinet.
“Now the market is really focused on what tone this guy’s going to take,” Taylor said. “It all comes down to: is it the whack job, or was that to get elected? And is he going to take a much more practical, reasonable approach?”
Money managers are also preparing for the possibility of higher inflation on the president-elect’s proposals to limit trade and immigration, as well as increase spending.
Taylor said higher inflation expectations could firm under Trump. “We’re a little bit concerned that we’ll get a little bit higher inflation, not enough really to spook the Fed, but that there’ll be upward bias on inflation expectations,” he said.
Todd Schlanger, investment analyst for Vanguard Asset Management, said the firm did not make tactical changes to its model portfolios ahead of the election. He says it’s sticking to one of its key principles: discipline.
“We would expect higher volatility than normal as we go through the end of the year and into the first quarter,” Schlanger said. “That’s where remaining disciplined with somebody’s asset allocations, we think is really important.”
Doce Tomic, chief executive for Credential Financial, said via email the election is an opportunity for advisors to reach out to clients.
“This is a valid reason for advisors to call or email top clients—as well as those who are more sensitive to market fluctuations—to reassure them or revisit their portfolios to ensure they have the right mix of stocks, bonds and cash to deliver sustained growth,” Tomic said.
In an election as divisive as this one, he advised keeping emotions in check and putting personal biases aside.
“Staying disciplined and maintaining a focus on investment goals by keeping a diversified portfolio within pre-established risk tolerance and investment objectives, should help mitigate short term volatility,” Tomic said.
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