Will Trump make your money great again?
We analyse how the new President will affect your investments
THE age of Trump is almost upon us. The billionaire businessman will be sworn in as the 45th President of the United States on January 20. Here, The Mail on Sunday explores what America under Donald Trump will mean for British investors.
AS I stand in the heart of Manhattan surrounded by the bright lights of Broadway and festive bustle of Christmas shoppers, America seems to be in rude health.
The vibrant centre of commerce and entertainment known as Times Square is a tribute to the consumer-led American Dream. Store windows are packed with eye-catching displays festooned with tinsel, baubles and winter snow scenes. Above the crowded sidewalks, giant neon billboards blaze colourful adverts to the shoppers enjoying the fresh December air.
Jump into a yellow cab from the square and in five minutes you are on Fifth Avenue close to Central Park and outside the 58-storey skyscraper Trump Tower. This brash monument to extravagant wealth boasts gold-plated lifts and an 80ft waterfall in the foyer – and is home to the next US President.
In the last few weeks there has been gridlock around this tower with ‘ring of steel’ security measures placed outside – metal railings, men-in-black Secret Service agents and armed NYPD police officers swiftly moving on dawdling passers-by. The world was shocked a month ago when the billionaire property developer Donald Trump confounded almost all the pundits to be voted in as the next President of the United States.
Despite initial market turmoil in response to this surprise result, global stock markets settled – perhaps holding their breath to pass judgment until he moves to the White House and gets down to the business of ruling a nation. Wife Melania and youngest son Barron, ten, will remain in Trump Tower.
The decisions the 70-year-old President-elect makes could have a big impact on investments held by UK investors. Even if you are not investing directly into US investment funds, as the world’s biggest economy what Trump does will still have a significant impact on your finances.
CONSIDER THE VOTE FOR CHANGE
TRUMP was voted in to the White House with the help of a powerful campaign slogan: ‘Make America Great Again.’
It is a phrase that was first used by former Hollywood actor Ronald Reagan when he successfully ran for US President in 1980. It indicates that Trump plans to learn from the past in his bid to boost the US economy.
Brian Dennehy, managing director of financial adviser Dennehy Weller & Co, says: ‘Ronald Reagan was seen as a lightweight former Hollywood actor and before him Richard Nixon was exposed as a paranoid angry liar.
‘But that did not stop either managing major economic accomplishments. Investors should not panic.’
Trump has already shown he plans to act differently from Barack Obama by announcing he will rip up a trans-Pacific trade deal with other countries.
Russ Mould, investment research director at online stockbroker A J Bell, says: ‘So far they have just changed the name on the brass plate for the presidential office. But you sense an air of uncertainty.’
He adds: ‘The US is a dynamic and entrepreneurial country and having a new President is not going to change that. For all his pro-business rhetoric it is probably the mega companies in sectors such as technology, mining, construction, banking and pharmaceuticals which will be rubbing their corporate hands in glee.’
Trump says he plans to inject $1trillion (£790billion) into US infrastructure projects over the next decade. This is expected to benefit areas such as construction and mining.
But as a pro-business President, he also aims to cut red tape and industry regulations. This could boost industries such as pharmaceuticals and banking whose bosses say they are constrained by unnecessary rules.
Trump’s election success was in part down to him reaching out to the so-called ‘rust-belt’ of the US that once had a powerful manufacturing base.
Although he may struggle to turn back the clock on lost labourintensive industries such as car manufacturing, he is likely to put up tariffs on foreign imports.
During the election campaign he warned China and Latin America of a possible 45 per cent tariff on imports. With all these changes on
the horizon investors need to consider the best way to make money from American investments.
PICK A MANAGED INVESTMENT FUND
INDIVIDUAL stock picking requires skill, time and a fair slice of luck. For most investors it is better to pool resources with others and invest into a fund or trust – with a skilled manager deciding what shares to buy and sell.
By putting money into one of these investment vehicles you spread risk by investing in a portfolio comprising a number of company holdings.
As a rule of thumb, investors should hold no more than 20 per cent of their portfolio in US stocks through pooled investments. Alan Steel, managing director of financial adviser Alan Steel Asset Management in Linlithgow, West Lothian, says: ‘I expect continued economic growth in the US until at least the end of the decade. The proposed spending on infrastructure will help to fuel this.
‘As far as investors are concerned, forward-thinking fund managers looking for extra value in the stocks they buy is where the future lies. Jenny Jones, who runs Schroder US Smaller Companies, is the kind of person to trust with your money – she has been looking after funds since the era of Ronald Reagan.’
Another fund Steel likes is Neptune US Income, run by George Boyd-Bowman. He says: ‘There is a hard core of American companies which have a record of growing dividends year in, year out for more than two decades.’ He is also confident recommending Brown Advisory US Flexible Equity and JPMorgan US Equity Income.
Jason Hollands, a director at wealth manager Tilney Bestinvest, believes it is worth seeking out sectors most likely to benefit from President Trump.
He says: ‘With a greater focus on infrastructure investment and lighter regulation there are funds in these areas worth considering. For example, First State Global Listed Infrastructure invests heavily in roads, rail, ports and utilities.’
Another favourite is Axa Framlington Health Fund which has more than two-thirds of its portfolio invested in America. The Republican victory put a halt to greater controls on drug pricing as threatened by Democrat candidate Hillary Clinton. Its fund holdings such as biotech giant Gilead Science, which sells drugs for HIV treatment and cancer sufferers, should benefit from less red tape.
JPMorgan American Investment Trust has a strong focus on technology, with Apple, Microsoft and Hewlett Packard among its portfolio of shares. Jupiter US Smaller Companies Trust has a quarter of its money in financial services – an area that could do well if Trump cuts back on regulation of Wall Street.
KEEP TRACK OF THE MARKET
FEW managers consistently beat the US stock market. Investors are often better off investing in a US fund that tracks the market. Russ Mould, of AJ Bell, says: ‘By tracking the market you will benefit if businesses do well under Trump and it also lessens the pain if equity prices tumble. One of the reasons for this is because you pay lower charges than with an actively managed fund.’
An actively managed fund can charge as much as 1.5 per cent of its value each year as a fee – while tracker charges are less than 0.5 per cent a year.
Mark Dampier, head of research at fund broker Hargreaves Lansdown, says: ‘Trump has no track record so as an investor there is no point jumping up and down right now. Be wary of investing in areas just because they seem to be flavour of the month. It sounds dull but a US tracker really is as good a place as any for your money.’
Dampier recommends trackers such as the L&G US Index, which plots the fortunes of more than 650 stocks in the FTSE World USA Index and charges 0.1 per cent a year.
Another is HSBC American Index that tracks the Standard & Poor’s 500 Index – the top 500 stock market listed companies in the US. It charges 0.08 per cent a year. You can also plot the fortune of the world’s biggest economy through an exchange traded fund. This is a form of share that works like a tracker – replicating the performance of a specific market.
Invesco Perpetual is among those offering exchange traded funds through its brand PowerShares, charging from 0.3 per cent a year.
GO FOR GLOBAL DIVERSTY
INVESTORS can put their money into a broadly diversified global fund if they are concerned that Trump might upset sentiment towards US equities.
Alan Steel says: ‘Among the experienced managers worth considering for global investment is James Harries. He used to run the Newton Global Income fund but quit last year and launched the Trojan Global Income Fund last month. He consistently beats most of his peers and focuses on looking for value through careful stock selection while delivering long-term income growth.’
Global investment trusts with US exposure include Scottish Mortgage and Witan.