National Post (National Edition)
TRUMPED-UP STOCKS AND WHY YOU SHOULD OWN THEM
Donald Trump’s victory in the presidential election, and the surprise boost it provided for U.S. equity markets, has and will continue to force investors to reassess their positioning.
While the S&P 500 has risen roughly two per cent since election day, there has been a much more significant rotation between asset classes and sub-sectors.
So what’s the ideal way to position a portfolio now that Washington will be controlled by Republicans and Trump?
Jonathan Golub, chief equity strategist at RBC Capital Markets, suggests focusing on investment characteristics that should benefit most from pro-growth policies.
The first is value, since low-P/E stocks tend to do best when economic growth is strong, and they have been out of favour for much of the recovery.
Golub also recommended companies with domestic focus, since the U.S. dollar appears as though it will remain strong.
The strategist also highlighted operating leverage, as strong growth will likely help economically sensitive firms that have high fixed costs.
On the tax front, Golub noted that a reduction in corporate taxes should benefit companies with higher effective tax rates.
Finally, he pointed out that low volatility stocks are usually very sensitive to interest rates.
As a result, they are likely to underperform as rates rise.