One year after the unlikely victory of Donald Trump many US companies have enjoyed a boost to their valuations thanks to predictions that the administration's pro-markets position would translate into policy.
The so called ‘Trump bump’ that resulted has in some cases disappeared as commentators begin to doubt the administration's ability to pass legislation.
However, some companies and sectors that are more sensitive to Trump policies continue to enjoy the boost.
We asked five managers how they benefited from the Trump bump.
Nick Ford, fund manager, CF Miton US Opportunities fund
'Within the Miton US Opportunities fund, homebuilder PulteGroup has benefitted from the “Trump bump”. The company is relatively diversified in terms of customer profile and geography as it has operations in most major metropolitan markets.
'With both consumer and business confidence surging since the election, prospective homeowners have been enticed by low interest rates with the more affluent ones also seeing their net worth bolstered by the surging US stock market.
'Successful implementation of US tax reform would result in higher levels of disposable income for homebuyers but even if Trump failed to get a deal passed, PulteGroup will still benefit from favourable industry dynamics: demand for new homes continues to outstrip supply resulting in excellent pricing power for homebuilders.'
Jonathan Parsons, investment manager, Kames Capital
'Tetra Tech Inc is a leading provider of engineering consulting and technical services to both government and commercial clients. While the shares certainly saw an initial bump from the election of president Trump infrastructure spending excitement was building months prior to his election.
'Our positive view on Tetra Tech is more structural, based on the growing need to find sustainable solutions to activity that has a negative environmental impact. Indeed last quarter they reported strong growth in water and environmental projects and a record high backlog. Tetra Tech has also helped communities with response to the recent disasters in the US, initially helping to rebuild, but also to increase their resilience for the future.
'This being said Tetra Tech is leveraged to the vectors of the Trump trade, 60% of the business is federal or state government funded and with over 70% of its revenues originating within the US it pays an effective tax rate >30%. Therefore it would be a beneficiary of corporate tax cut and also any tax policy changes that stimulate capital investment.'
Richard Champion, deputy CIO, Canaccord Genuity Wealth Management
'In the first flush of last year’s surprise Trump victory in the US presidential election, markets drove a variety of sectors higher, notably financials, industrials and infrastructure-related plays.
'However, by early spring this year, it became apparent that the Trump administration was achieving nothing fast, and enthusiasm for these early “Trump-bump” sectors waned, with nearly all of them giving back their relative outperformance.
'More recently, however, focus has returned to the impact the administration’s policies may have, particularly in two areas: firstly, it appears likely some form of tax reform will pass Congress, and the shares of companies paying full rates of corporate tax have risen; since the end of August the Russell 2000 index of smaller US companies has outperformed the S&P 500. Secondly, the one area where Trump’s agenda has made some progress is in deregulation, and this has helped both the energy and the banking sectors.
'In each area other positive factors have been at play – in the case of the former the rise of the oil price this year, and in the latter a combination of a steeper yield curve and the appointment of Jerome Powell as the new chair of the Federal Reserve. Mr Powell is widely seen as having a lighter-touch approach to regulation than Janet Yellen, his predecessor.'
Giles Parkinson, manager, Aviva Investors Global Equity Endurance fund
'I’m not convinced that tax reform is being priced into stocks properly at all. If it was, then the headline measure of a reduction in the federal corporate tax rate from 35% towards 20% should have caused the valuation multiples of domestic businesses to re-rate compared to their overseas peers in anticipation of the profit boost.
'But we haven’t seen that in diverse areas such as railroads, consumer products, soft drinks, tobacco, or spirits. Companies in our Global Equity Endurance fund collectively derive a little under half of their revenues from America and have strong franchises which should enable the firms to retain the uplift to their returns rather than seeing the benefit passed on to consumers, should tax cuts happen.'
Paul Vrouwes, senior portfolio manager, Optimised Portfolio Strategies, NN Investment Partners
'We expect corporates with high exposure to local (USA) profits, or exposure to US construction to benefit above average.
'We believe this is not yet fully incorporated in share prices. To highlight a few: regional US banks, European banks/brokers with US exposure, and US construction companies.'