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Kris Heck: How to position for US clients after Trump’s win

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The most important thing for investors to realise is that this blip will likely not mean much for a long term investors perspective. There will be tremendous short term volatility, but this does not change the structural makeup of the US capital markets and the benefits of investing for the long term.

This is very different from the EU referendum result, which did in fact change the structural economic realities of the UK and the EU (implying that the UK will be leaving the single market, hence leaving two smaller economies and trading zones as a result).

Sterling has still not recovered from the roughly 20 per cent fall that occurred as a result of the referendum result, and likely won’t if the EU exit process goes through to completion.

We are reaching out to our clients today to reassure them that we are positioned well in our portfolios (shorter US dollar duration, avoiding long term treasuries, globally diversified, and able to rise above the short term noise), and that the general economic effects of a Trump presidency are likely to be muted through expected Republican policies aimed at growing wealth and minimising government regulation.

Our view on the election results is that there will be an initial shock, as we have seen from overnight markets, with S&P futures down 5 per cent at one point. They have since recovered to around 1.5 per cent as at the time of writing. Some particular markets may also be hit, such as Mexican bonds, with emerging market bonds overall down 1.2 per cent.

Similarly, long US Treasuries will likely get hit when the US opens, with the 30 year yield up 13 basis points.  On the US dollar yield curve, it will be better to be on the short end of duration and avoid the longer end.

Since the Republicans seem to be controlling the Senate, House, and Presidency, they will have nearly free reign to implement tax cuts, limit government spending, and repeal the Affordable Care Act.  This can create larger fiscal deficits, putting pressure on US government yields to rise, perhaps delay the anticipated December rate hike from the Fed, and give a boost to health care stocks.

Perceived safe havens such as gold, yen, and Swiss assets will likely rise as nervous investors wait out the tumult.

Kris Heck is managing partner at US ex-pat specialist advice firm Tanager Wealth Management

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