Donald Trump may have presided over a period of healthy growth, fuelled by tax cuts, but he also created unnecessary turbulence. For the past four years, global equity managers like me have been waking up to his overnight tweets — usually provocative, often incomprehensible — wondering what they might mean for portfolios.
It will be a blessing to have someone in the White House who has actually spent some time in China. Mr Trump did not help successful businesses with good products to sell around the world. Most boards on these large companies — even if on the political right — will feel it makes planning much easier. They can make decisions without having unexpected rule changes suddenly imposed on them. Expect investment to be unleashed.
The failure of a blue wave to materialise may also be good for markets. We are no longer anticipating hefty tax rises in the US.
Hardly had we emptied the first vintage Cava bottle when news of a vaccine arrived. The numbers on the clinical data, as so far provided by Pfizer, look impressive. There is some way to go before over 600m are injected but there is light ahead. So where does this leave portfolios?
Times of change are times of opportunity, but also risk. A common mistake many investors make is to put too much faith in the power of mean reversion. They hold on to failing stocks, trusting that they will inevitably recover. Unfortunately, a Covid-19 vaccine may fill them with misplaced optimism.
At times of such significant societal change some business models become outdated and will never recover. Work arrangements will probably become more normal next year but how many of us will ever return to the office full time?
Many restaurants, bars and sandwich bars in London’s financial centre will close permanently and landlords will struggle to re-let. Fewer people spending time in city centres will further damage high street retail. Offices will become smaller, driving down commercial property prices. Where offices remain open, owners will have to upgrade them.
Some companies which have performed well this year will continue to benefit. One area in the ascendancy — pardon the pun — is the lift industry. It is dominated by four companies: Fujitec (Japanese), Kone (Finnish), Otis (American) and Schindler (Swiss). The bulk of their profits come from maintenance, so there is attractive recurring income.
In July it was claimed that one Chinese woman, returning home to quarantine, passed the virus on to 71 others in her apartment block through a single lift journey. Not surprisingly, lift companies are busy making adaptations to address Covid concerns. Kone has developed an app that allows you to call for a lift with your mobile phone to reduce touch points.
A vaccine is unlikely to reverse this wave of upgrades — the world must be prepared for more pandemics. Lift companies also benefit from the powerful European green agenda. This is especially the case in France, which has the oldest fleet of elevators in the world. There is a drive to replace its rattling fin de siècle wrought iron contraptions with modern lifts that are energy efficient.
The US now looks set to adopt Europe’s climate change agenda. Though it only formally withdrew from the Paris climate deal last week, Joe Biden has already set in process an executive order to take the US back in. The president-elect promised voters he would spend $1.7tn on the transition to a low-carbon economy.
A quarter of the world’s total carbon emissions come from heating and cooling buildings and transporting refrigerated goods. Regulations are likely across the world — and not just in the US — to reduce the energy demands powering this infrastructure. We have invested in Trane in the US and Daikin in Japan. Both have seen increased orders for systems that clean office air more frequently and use less energy.
We also like software providers, including Salesforce.com, Accenture and ServiceNow. The latter two offer complete outsourced IT support packages, including cyber security and the cloud. It seems likely that demand for such services will remain high for some years.
Perhaps surprisingly, the healthcare sector has not performed particularly well over the past year. Markets were concerned that a large swing towards the Democratic party in the US elections would lead to pressures on profits for healthcare providers. This now seems unlikely and we expect these shares to perform better next year, especially as much delayed elective surgery will now be scheduled.
We have seen how rapidly new diseases can become global pandemics, so developed societies must surely invest in hospital capacity and testing ahead of future outbreaks. This should benefit companies at the forefront of medical testing in particular. We invest in Thermo Fisher and Becton Dickinson, which will benefit from a recovery in surgery activity.
Other sectors may now pause a beat. Obvious “working from home” stocks, including Amazon and Netflix, have been some of the biggest beneficiaries of the pandemic and their share prices have risen sharply. Perhaps too sharply. We are not the only managers to have taken some profits.
You may have noticed how all of the companies mentioned here are international — from the US, Europe and Japan. Go global! The investment trust sector has some attractive global funds that you can put at the heart of your portfolio. Each offers something a little different. One of these — or a blend of two or three — gives you access to a global portfolio of well-researched companies, including stocks from Asia, which it can be hard to buy directly.
But why buy an investment trust over a unit trust? I manage both, so I hope I am impartial. Trusts have stable capital. There is no unit selling on bad days — and we have seen a few of those this year. They can smooth dividend payments. There may be times when they trade below asset value but many trusts (mine included) buy shares when at a discount (which increases value per share for remaining holders).
They also have a board of directors. This week, Mid Wynd appointed a new chairman — Russell Napier, a professor at the University of Stirling and one of the world’s experts on bear markets. Good directors like him can support the manager and add genuine value for investors. It is hoped that the news of the past week means that we will not be drawing on Prof Napier’s particular area of expertise for some time.
Simon Edelsten is co-manager of the Mid Wynd International Investment Trust and Artemis Global Select Fund.