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Trump and Your Portfolio: We Address Our Clients’ Questions

By Craig Maddock, CFP, FCSI, CIM, FICB, CFA, MBA
Vice President, Investment Management

As the Trump presidency continues to unfold, our clients have been coming to us with questions about the investment landscape, and the performance of their portfolios.

In response to these questions, I thought it might be useful to provide a recap of some of the communication we’ve posted recently about how we view the markets – and your investment portfolios – under President Trump.

How is MD positioning my portfolio for all potential scenarios?

While we definitely don’t have all the answers, I do know one thing for certain—regardless of the source of market volatility, MD’s focus on investment fundamentals (revenue growth, profitability, competitive positioning, etc.) to make fund management decisions will not change.

But with that in mind, we still need to analyze and account for the unknowns surrounding President Trump’s policies.  Our investment process has always been about building the right portfolios for our clients with a focus on your goals, time horizon and risk tolerance, and less about reacting to shock events.

Regardless of who is in office, successful investing requires a disciplined approach to asset allocation and stock selection. Our approach to asset allocation is linked to time horizon and increases the amount of fixed-income investments in your portfolio as the time horizon gets shorter. On top of that, based on anticipated changes to market conditions, say from President Trump’s actions for example, we make tactical, short-term adjustments to your portfolio to potentially improve returns and reduce risk.

Across our funds, we search company by company to identify stocks with strong fundamentals, regardless of what is happening in politics. Stock prices can fluctuate on many variables, including new government policies from President Trump (or Prime Minister Justin Trudeau, Prime Minister Theresa May, etc.); however, the intrinsic value—a company’s real worth—changes slowly over time and is far less volatile.  

What are the upsides in this type of market?

I recently had a discussion with one of our asset managers. What really stuck with me was the fact that they didn’t expect any material changes to the intrinsic value of the companies in our funds as a result of the U.S. presidential election. They also reinforced the fact that if we saw any downward stock price movement in great companies, it might provide us with a welcome investment opportunity.

Fiduciary Management, Inc., an advisor on our U.S. value mandates, provides a good example of this in practice. A number of companies they hold are non-discretionary and deliver on customer needs more than on wants. For instance, Dollar General provides basic living items to rural towns, and Honeywell and Rockwell specialize in automating production and making manufacturing more efficient. These needs haven’t changed with President Trump in office. We’ll continue to analyze and assess each company’s intrinsic values as the Trump presidency unfolds.

While it’s far too early to tell exactly what President Trump will mean for the global economy, financial markets and investments over the long term, we have seen the S&P 500 Index rise over 7% between the election and February 8. And we believe that U.S. equity markets will likely continue to be driven by the business cycle more than anything else.

Which sectors will benefit, and which may suffer?

It’s clear that there will be a shuffling of winners and losers in President Trump’s America. In the short term, the financial sector has been an obvious winner. In both Canada and the United States, the sector is up over 10%, with bank stocks the largest beneficiaries. This is partly due to the rise in U.S. interest rates and President Trump’s promises to relax banking regulations.

On the opposite end, we’ve seen a fall-off in healthcare stocks since the election. The healthcare sector is down about 6% in Canada and down 1% in the United States as the industry adjusts to the possible repeal of the Affordable Care Act. These are the types of themes we will continue to look for, analyze and adjust for, if necessary.

To date, markets have generally responded positively to Trump’s policy and executive order actions, but we should be prepared for future market volatility, and a likely market correction. The reality is that a major market drop will happen from time to time whether Mr. Trump is president or not. Managing for all potential risks is a deeply ingrained part of the investment management process here at MD Financial Management. We have a common view—that through a disciplined approach, a continued focus on company fundamentals will drive investment opportunities and performance. 

With more uncertainty in the markets, I’m confident MD’s unique combination of world-class investment management will continue to help our clients meet their investment objectives as the next four years unfold.