
- A new President will bring new policies to analyse and factors to consider, but also brings some certainty.
- US smaller companies could benefit from Trump’s pro-US stance.
- If worried about risks, consider buying an actively managed or more defensive fund.
- Three investment ideas to weather a Trump presidency.
Victoria Hasler, head of fund research, Hargreaves Lansdown:
“A new year, a new president. The lead up to Trump’s presidency has been noisy and, at times, divisive. Markets hate uncertainty though, and the simple fact of having the new president settled in the White House may prove to be a good thing for markets. Over the next few weeks and months, we (and the rest of the world) will be watching closely, listening to the speeches and analysing the policies. No doubt some will have a more positive impact on markets than others – expect some fireworks and associated volatility as we navigate the next four years.
This notwithstanding, there are good reasons to believe that the impact on the US stock market could be positive, and particularly so for smaller companies. Because trade tariffs, Trump’s most talked-about policy, favour domestic businesses over international conglomerates, and smaller companies are usually more domestically focused. During campaigning, and since the election, we heard a lot about tariffs. We expect the reality to be a little more muted than the campaign chat, but nonetheless at least some new tariffs are likely, particularly when it comes to Chinese trade.
At the same time, we have the supportive backdrop of monetary policy easing. While we don’t expect interest rates to fall as quickly as originally anticipated, they are almost certainly on a downward trajectory. Historically, small companies have tended to perform well relative to their larger counterparts in a falling interest rate environment, which further strengthens the outlook for smaller companies. Add to that the potential for lower personal and corporation taxes in the US and the tailwinds are building for US smaller companies.
Looking a little further afield, Trump’s occupancy of the White House could cause some jitters in global equity markets. We have yet to see how his foreign policy will play out, but it could cause tension with certain countries, including China, and tariffs could impact growth in markets which rely on exporting goods to the US. Markets aren’t keen on geopolitical uncertainty, and if tensions escalate, we expect to see increased volatility.
How you could invest for the new Trump era
The reality is likely to be somewhat less dramatic than the campaign rallies, and there are still many unknowns around how Trump’s policies will play out in practice. Good active managers can be worth their weight in gold in times like this. That’s because they’ll be able to analyse and respond to any policy surprises quickly and adjust their portfolios to manage the risks and take advantage of the opportunities.
Here are 3 fund ideas which investors could consider:
1. Artemis US Smaller Companies
Trump’s policies could likely be positive for domestic-facing US corporates, and that means US smaller companies could benefit.
Managed by the experienced Cormac Weldon since its launch in 2014, the Artemis US Smaller Companies fund seeks out smaller companies with potential for their share price to grow and could be a good option.
We like the way the manager considers how the US economy is performing to actively identify sectors and companies that are benefiting from trends, as well as areas that are finding things tough. We believe this could stand the fund in good stead to take advantage of new or changing policies put in place by the new president.
2. Rathbone Global Opportunities
If you’re unsure of what a Trump presidency could mean for global markets, you could consider an active global fund in which the manager can worry about the risks for you. The Rathbone Global Opportunities fund could be a good option to add some global diversification to your portfolio, while getting the benefit of an expert managing your positions. James Thompson, the fund’s manager, is one of only a few global fund managers to show they can pick great companies and perform better than the broad global stock market over the long term.
He looks for easy-to-understand businesses that can grow to dominate their industry and defend themselves from competition. He’ll also search off the beaten track to find companies with superb potential that might be overlooked by other investors. Thomson thinks exceptional companies are few and far between, so he only invests in a small selection. This gives each the potential to contribute significantly to performance. At the moment, he mainly invests in developed markets, like the US, UK and Europe.
3. Troy Trojan
If you’re worried about the impact of tariffs or political instability on the geopolitical situation, a more defensive fund could be a good option to help offer some shelter in turbulent times.
The Troy Trojan fund, managed by Sebastian Lyon and Charlotte Yonge, aims to grow investors’ money steadily over the long run, while limiting losses when markets fall.
The fund is focused around four ‘pillars’. The first contains large, established companies Lyon and Yonge think can grow sustainably over the long run, and endure tough economic conditions. The second pillar is made from bonds, including US index-linked bonds, which could shelter investors if inflation rises. Some of the fund is also invested in UK government bonds (gilts). The third pillar consists of gold-related investments, including physical gold, which has often acted as a ‘safe haven’ during times of uncertainty. We don’t think that gold will repeat the 30% return of 2024, but we do think it holds its value this year. The final pillar is ‘cash’. This provides important shelter when markets stumble, but also a chance to invest in other assets quickly when opportunities arise.”
Fund performance
1 year | 3 year | 5 year | |
Artemis US Smaller Companies | 25.02% | 13.63% | 66.68% |
IA North American Smaller Companies | 12.75% | 7.92% | 53.66% |
Rathbone Global Opportunities | 17.46% | 10.66% | 75.43% |
IA Global TR | 12.49% | 12.51% | 52.41% |
Troy Trojan | 6.67% | 5.71% | 27.76% |
UK Retail Price Index | 3.46% | 23.42% | 34.33% |
FTSE All-Share | 9.47% | 18.53% | 26.48% |
Source: Lipper IM, to 31/12/24