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Investment Committee: Mark Sevier, Alpha Portfolio Management

Investment Committee: Mark Sevier, Alpha Portfolio Management

Alpha Portfolio Management's head of research wonders if the honeymoon period between Donald Trump and investors is over.

"Following his election victory, Donald Trump could do no wrong. US equities leapt as investors looked forward to stronger economic growth on the back of his stimulus plans and America First policy. The infrastructure programme and tax reforms got investors excited about higher US corporate profits and higher cash returns through dividends and share buy-backs, as well as the scope for more M&A activity.

But is the honeymoon period now over between Donald Trump and investors?

A series of political setbacks and geo-political tensions appear to have pushed the president’s stimulus plans off course. The infrastructure programme has apparently slipped onto the back burner, while Trump appeared to run into a brick wall on replacing Obamacare. This in turn has raised questions on his ability to deliver the tax reform programme. He has subsequently been distracted by North Korea where a ‘war of words’ quickly escalated.

Trump has run into bigger problems at home. His delayed reaction to condemn white supremacist groups following the events at Charlottesville raised strong criticism. He then had to deal with three immediate resignations from his American Manufacturing Council. Equity markets became nervous following a series of changes within the White House as rumours circulated that Trump’s chief economic adviser was planning to resign.

Since then, Trump has continued to create further unease. He said that he was ‘willing to risk a government shutdown’ to ensure funding for the construction of a wall along the US-Mexico border. He also revived a threat to pull out of the North American Free Trade Agreement (NAFTA) with Canada and Mexico. As if he did not have his hands full already, he is now dealing with the human and physical cost of the floods caused by Hurricane Harvey.

All these factors have been reflected in the US dollar which recently touched a two-and-a-half-year low against a basket of major currencies. Investors typically have many challenges, but the era of record low interest rates and extraordinary stimulus measures appear close to their height. Can central bankers normalise monetary policy over the medium term without unsettling financial markets? Though European political risk has diminished, the UK could face a messy autumn politically. However, market sentiment is likely to continue to be dominated by Trump – or rather his tweets!

Given the uncertainty surrounding Trump’s ability to deliver, we have seen some softening in the global economic growth outlook. Despite this, and further North Korean missile tests, we believe that equities, globally, continue to look attractive, particularly relative to other asset classes. Within our equity exposure we are broadly diversified, with investment selection, rather than asset allocation, dominating recent changes.

We are typically overweight smaller companies, particularly in the UK, and more generally overweight European assets; albeit we have used recent euro strength against sterling as an opportunity to take some profits. Within UK equities, stock selection is key, particularly given the number of high profile profit warnings recently.

Stock divergence remains high, we continue to bank profits where valuations have become stretched and re-invest in more attractive opportunities across a variety of sectors.

The demand for income remains a challenge for many investors. We typically remain overweight to alternative strategies. We are also finding a number of attractive income investment opportunities, although a pro-active approach is essential as indigestion, at some stage, appears inevitable.

Finally, Trump is a keen golfer. As a fellow golfer perhaps I can offer some advice? Stop blaming the media and your caddy, and keep a firm grip. Yes, you have had to face a few tricky opening holes and hit a few obstacles but there is still time to improve and win. One other golfing tip for president Trump. Don’t challenge Kim Jong-un to a game of golf. I doubt you will win against a member of the Kim family. According to the biography of his late father, Kim Jong Il first picked up a golf club in 1994, at North Korea’s only golf course, and shot a 38-under par round that included no fewer than 11 holes in one! Beat that, Mr President." 

If you would like to write for our next Investment Committee panel, email Suzie on sbliss@citywire.co.uk

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