3 veteran investors share where to invest now to build resilient, long-term portfolios that win even if the elections produce a gridlocked government

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  • Three veteran investors have told Business Insider that the current bullish sentiment in the market signals that investors are breathing a sigh of relief that a blue wave is off the table. 
  • While the election outcome is still unclear, the investors all view a divided government as having a positive impact on the markets. 
  • They also shared where to invest right now to build resilient long-term portfolios that could win in different scenarios. 
  • Visit Business Insider’s homepage for more stories.

The hope for a clear winner in the presidential race was dashed when Americans awoke Wednesday morning to an ongoing election that could be uncertain for days and even weeks. 

Millions of votes were still being counted and the races in key swing states were still too close to call as of midday Wednesday. 

However, the financial markets, which are notoriously averse to uncertainty, have taken the news in stride. Led by the tech giants, the Nasdaq surged almost 4.5% while the S&P and the Dow rose 3.4% and 2.9%, respectively, in midday Wednesday trading. 

“What we’re seeing today is mainly some relief that the Senate is not going blue,” said Giorgio Caputo, a senior portfolio manager at the $36.2 billion J O Hambro Capital Management.

“So you’re seeing technology having a very strong bid. You’re seeing healthcare stocks perform well. You’re seeing infrastructure companies doing a little worse,” he said in an interview. “With the Senate staying red at least for the next two years, any meaningful tax increases are off the table and that seems to be getting priced into the market today.”

For Margie Patel, a senior portfolio manager at the $578 billion Wells Fargo Asset Management, the stocks are not only pricing in a gridlock scenario but also sending out a clear signal.

“I think the markets for the last two days and then today is really believing that Trump will finally get the nod when they count all the ballots,” Patel, a 47-year investing veteran, said in an interview. 

She added: “Looking at the House and Senate races, which haven’t got nearly as much attention, looks as if there isn’t any major change… It doesn’t look like there’s a lot of uncertainty there so no change is good news for the market too.”

Richard Sandor concurs that the markets are looking past the uncertainty at the presidential level. A commodity legend back in the days, Sandor is also known as “the father of financial futures” for developing the US Treasuries futures market.

“I think that the markets seemed to be telling you that a divided government is constructive,” said Sandor, now chairman and chief executive of the American Financial Exchange, in an interview. 

He continued: “I think most participants expect one way or the other — independent of the outcome at the presidential level — that there will be a big fiscal stimulus package and while it was delayed this fall, that it will go on. So I think there’s a very bullish sentiment here.”

Where to invest for resilient, winning portfolios

While the markets are responding positively to the potential gridlock scenario, the Cboe Volatility Index or VIX was down as much as 17% as of midday Wednesday. But that does not mean there will be no volatility ahead. 

“Depending on how things go, you certainly could see volatility and chaos,” said Caputo.

He explained: “There are scenarios where you end up in protracted litigation and we could end up in another 2000-style scenario where we keep going back to the courts and appealing recounting. And then just given the backdrop of what was a pretty divisive race between the two candidates, we could see protests and those kinds of things.”

To hedge against those bumps in the road, Caputo is suggesting that investors look to cash, gold, and Treasuries for safety and protection. 

“Those are the kind of antifragile assets that could do well in periods of volatility,” he said. “These days you really want to try and put together a resilient portfolio, because the shocks are coming at you from almost every side. We’ve got a pandemic, we’ve got a contested election, we have high unemployment, we have geopolitical issues.”

“I think portfolio construction has never been more important than it is in a time like today,” he added. 

As for Patel, she still favors growth stocks in her portfolio, which has less to do with the White House and more to do with the Federal Reserve

“We are still favoring stocks that look as if they have long-term growth characteristics, so we still think companies that have secular improvements are where we want to be concentrated,” she said. “So we’re really not looking at deep value or certainly anything inflation-related.”

She said: “Regardless of how the election turns out, both parties have clear support for what the Fed is doing which is basically to keep interest rates very close to zero and provide a liquidity floor to the marketplace.”

Specifically, she is bullish about the technology, healthcare, and industrial sectors. 

“Regardless of which party or a change in healthcare law, there is a secular demand for more healthcare services, and the innovation in biotech or tools and devices is also very positive,” she said.

She added: “We think that the tools and devices sector has the advantage of technology where they can innovate and create new products, but don’t have the kind of pricing pressure that you see in some parts of the pharmaceutical market.”

She extends the same philosophy to identifying outperforming stocks in the industrial sector. Companies that use software to make their processes more efficient will do well, she said. 

Rather than worrying about the next president, Sandor, who is “fundamentally bullish on US equities,” caution investors to stay invested in the stock market even if it is through a broad-based US index fund. 

“I do think that under either the Democrats or the Republicans, we will see the fiscal stimulus,” he explained. “I think the election politics resulted in no bipartisan action. But once the political situation is clear, we will see a big fiscal stimulus that will carry the equity markets.”