Henderson: US Equity Growth: outlook 2017

What lessons have you learned from 2016?

2016 was the year of the populist movement as pundits and pollsters were stunned by the UK’s decision to leave the European Union and the selection of Donald J. Trump as the 45th US President. The populist message of protectionism, immigration reform and distrust of career politicians drove disenfranchised voters to the ballot boxes in overwhelming numbers. While the outcomes from these votes surprised investors, what seems like even more of a surprise has been the positive market reaction. The real question for markets, and more broadly the world, is whether Mr. Trump’s campaign rhetoric will turn into reality and what type of president will he be? With the Republicans also keeping control of the House of Representatives and the Senate, the new administration will have the opportunity to effect significant change.

What are the key themes likely to shape the markets in which you invest in 2017? 

In 2017 we expect a large infrastructure package to be passed, ie investments in roads, bridges and airports but also in energy infrastructure. Tax policy will certainly be in play as the Republicans are seeking to reform the corporate tax code, including a repatriation of monies overseas. We expect changes to the Affordable Care Act (ACA), if not an outright repeal of the legislation. Immigration will also be near the top of the President-elect’s ‘to-do list’ but we fear his hardline policies may hurt US growth, specifically if it impacts the availability of H-1B visas, which are desperately needed to fill the talent gap in the US. A renegotiation of the US trade pacts was a key message of Mr. Trump’s campaign so we would expect to see these plans put into action shortly after he takes office. The wild card in much of this is the Republican’s willingness to run a larger budget deficit or find ways to offset much of the increased spending. 

What are your highest conviction positions moving towards the new year? 

On the surface most of Mr. Trump’s policies appear pro-growth but we wonder if markets have been overly optimistic. While Mr. Trump has billed himself as an outsider intent on “draining the swamp” we heard the same promises eight years ago with Barrack Obama only to be left disappointed. We would not be surprised if Mr. Trump ends up needing to negotiate with the Democrats, and even the Republicans in his own party, resulting in scaled down, more budget-friendly versions of the policies proposed. 

Judging by the market reaction in commodities, materials, and financials there could be more downside risk than upside at this point. Currently, sectors such as consumer discretionary and technology look more attractive because of consumer strength and technology stocks have not participated in this most recent rally. As the election is now behind us and consumer confidence is improving, we think in 2017  the US consumer may start to spend more freely, to the benefit of consumer discretionary stocks. As for technology companies, we acknowledge the concerns around immigration reform for the sector’s reliance on high-skilled labour, but we still see opportunities within the sector. 

What should investors expect from your asset class and your portfolio(s) going forward? 

The unpredictability of Mr. Trump leaves us leery of getting too excited about 2017 and markets may have gone too far too fast. If Mr. Trump is able to push through his agenda of tax reform and infrastructure spending we would expect markets to react favourably, and this would be especially positive for small and medium-sized companies, but we believe this may be difficult. We expect markets to be especially volatile next year and this should be a positive for high quality equities. As always, we will continue to adhere to our high quality philosophy and the nature of the companies we invest in, with high recurring revenue, good earnings visibility and strong organic growth rates, should reward investors in an uncertain environment.    

Die Wertentwicklung in der Vergangenheit ist kein zuverlässiger Indikator für die künftige Wertentwicklung. Alle Performance-Angaben beinhalten Erträge und Kapitalgewinne bzw. -verluste, aber keine wiederkehrenden Gebühren oder sonstigen Ausgaben des Fond.

Die Informationen in diesem Artikel stellen keine Anlageberatung dar.