Rathbones’ head of multi-asset David Coombs has hedged half of his US equity exposure back to sterling and bought Swiss franc corporate bonds in the run up to the American presidential election.
Although, Hillary Clinton is now favourite, the race has often been too close to call, leading many investors to reposition their portfolios to reflect the uncertainty.
Prior to the release of a recording revealing lewd comments made by Donald Trump about women in October, Coombs started to position his funds with the assumption that he would win.
‘For a Trump win it is obviously very difficult to fully understand what the market reaction will be,’ he said. ‘We have significant positions in the US both equities and bonds. We sold down our US dollar bonds and took profit because we held them from Brexit and they did well through the sterling fall.’
He also hedged 50% of the US equity exposure back to sterling, while using some of his fixed income profits to buy Swiss franc corporate bonds.
Coombs believes that Trump does win and the market gets jittery about what his foreign policy views will mean, the Swiss franc could be a currency to benefit.
‘There are two scenarios if Trump wins. From one perspective he is saying he will bring protectionist policies, which would mean tariffs on overseas goods and wouldn’t import as much and that in theory would strengthen the dollar,’ he said.
‘Then you might see retaliation, not just by countries raising tariffs on US goods, but also overseas governments starting to sell US Treasuries and that would be negative for the dollar.
‘We’re better off mitigating the risk of the dollar weakening. If the dollar keeps strengthening we miss a bit of the upside but that’s opportunity cost.’
Although he admits that a Trump win will have more short term impact on markets than a Clinton victory, the latter will affect healthcare stocks in the long-term.
Meanwhile, his 6% position in Japan proved beneficial as the yen surged against sterling post-Brexit vote, but he has now locked in some of the profit and hedged 25% of this exposure.
‘We do like the yen as a hedge against the Trump win,’ he said. ‘We’ve also hedged 70% of our euro exposure. That’s more because we’re concerned about the Brexit effect on the eurozone and the upcoming elections.’
He also considered taking Singapore dollar exposure, but ruled it out because of its closer correlation to the dollar. Now he is taking a closer look at gold, although he has bought into the precious metal yet.