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Trump walking political tightrope, warns JPM Claverhouse

Claverhouse managers William Meadon and Sarah Emly consider the positives and negatives associated with US president's policies.

 
Trump walking political tightrope, warns JPM Claverhouse

US president Donald Trump is walking a political tightrope, according to JPMorgan Claverhouse (JCH ) managers William Meadon and Sarah Emly.

While many investors are excited by Trump’s promises to cut red tape, reduce taxes and increase expenditure on infrastructure, measures which should stimulate both the US economy and stock market, the managers say there are negatives to consider too.

‘President Trump is also promising to increase tariffs and trade barriers – and his confrontational style communicated via Twitter may not be fully appreciated in the more diplomatic halls of geo-politics. A wrong move by him here could be globally destabilising and outweigh the benefit of any equity-friendly policies at home,’ the duo noted in JPMorgan Claverhouse’s results covering the 12 months to 31 December 2016.

The unprecedented political and economic backdrop on both sides of the Atlantic has caused the managers to take a cautious stance in the portfolio. Likewise, looming elections across Europe have the potential to create further uncertainty for investors.

‘The established global order feels under threat. However, such a tumultuous political backdrop will inevitably throw up investment opportunities which we will be looking to exploit for our shareholders,’ the managers said.

Over the medium-term, Meadon and Emly suggest there are clouds forming on the investment horizon. If these clouds darken, they will reduce gearing in the portfolio – which currently stands at 12% – and take a more defensive positioning.

‘However, in the short term, radically stimulatory measures in both the UK and US coupled with continuing low interest rates may lead this nine-year old bull market to have a further leg up,’ the managers added.

The duo reduced gearing ahead of the UK’s vote to leave the European Union through the sale of several domestically-focused stocks. These included Restaurant Group (RTN), Dixons Carphone (DC), Berkeley Group (BKGH) and Savills (SVS).

Following the referendum result the managers then increased the gearing of the portfolio again by adding large cap stocks, such as Ashtead (AHT) and Compass (CPG), which they believed had the potential to benefit from weaker sterling. This meant the trust’s exposure to FTSE 100 stocks increased through the course of 2016.

Performance review

During the year, Fevertree (FEVR), which makes premium drinks mixers, was the biggest contributor to performance with a share price rise of 108%.

‘Selling its products in 55 countries, the company was a beneficiary from the fall in sterling during the year. Despite its success the company has maintained a very lean cost base, only employing 50 people. This ensures that most of the firm's sales success is also reflected in its profit growth,’ the managers noted.

In contrast, television broadcaster ITV (ITV) was the biggest drag on performance, sliding 25% last year as investors temporarily turned away economically sensitive stocks after the Brexit vote and feared the television advertising cycle could fall into recession.

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