US Elections: Showdown for your portfolio
The US-elections on November 5th are eagerly awaited. The upcoming showdown is already dominating the media – and thus the attention of many investors. After all, regardless of the actual outcome of the election, some effects and trends can already be derived from the election programs. The upcoming US elections could also provide investors with interesting investment opportunities.
Elections in the U.S. tend to affect not only the population, but also the markets. For example, historical data shows that past elections have had a significant impact on the financial markets (NZZ, 05.06.2024). It is impossible to predict whether this will be the case in the future, but it may be worthwhile for investors to adjust their portfolios accordingly.
Investing early during the U.S. elections can be tactically advantageous for several reasons. Elections often bring uncertainty and volatility to the market, leading to short-term price movements that investors can take advantage of. In addition, individual sectors or companies are affected to varying degrees by the political or fiscal policies of the respective parties. This allows investors to take early positions in sectors that are likely to benefit from political changes.
US Election programs
For more than 160 years, the United States has had a de facto two-party system consisting of Democrats and Republicans. In the recent past, this dichotomy has led to even more extreme positions in certain segments of both parties, which in turn has fostered the development of polarizing presidential candidates and an often very clear delineation of party agendas (Eurasiagroup.net).
The performance of the sectors that presidential candidates focus on could therefore be strongly influenced by the outcome of the election. The relatively broad powers of the U.S. president add to the impact of presidential elections on markets. There are also clear differences in this year's face-off.
Two candidates with different political agendas
The nuances of both party agendas lie in the details. The program of Donald Trump, whose campaign is often referred to as "Agenda 47" in reference to the upcoming 47th presidential election, is reminiscent of an updated version of "Make America Great Again". Joe Biden, on the other hand, with his "Let's get the job done", does not see his mission as completed. In addition to the issues mentioned above, there are major differences between the two parties on foreign, domestic, and climate policy.
Trump’s «America First»
Trump's plans to rebuild the largest economy in history aim to strengthen and modernize the U.S. through a variety of measures. These include, for instance, cutting taxes, stimulating economic activity, restoring supply chains, strengthening border security, and creating new jobs. In addition, the U.S. global energy dominance is to be further expanded. Fossil fuels are to be used more, the withdrawal from the Paris climate agreement is being discussed, and the government plans to cut government subsidies for wind turbines and stop the "green revolution" (Donaldtrump.com).
Biden’s «Let’s get the Job done»
Joe Biden's political agenda is more moderate and continues to build on the existing policies of the current administration. These include the expansion of infrastructure and technology, increased government spending on education and healthcare, higher taxes on the wealthy and large corporations, and a more flexible immigration policy. Should Biden remain in office, this should also lead to increased investment in renewable energy and infrastructure as well as stricter regulation of conventional energy producers (Joebiden.com).
Impact on markets
The past has already demonstrated that the election results of the winners can influence the markets. For example, the different programs pursued by the presidents could favor certain sectors - and therefore also benefit certain companies. This, in turn, could affect the share prices of these companies. The race will remain exciting, and it is not yet clear who will emerge victorious. But no matter who it will be, the markets are likely to react accordingly, creating interesting investment opportunities for investors.
Different index strategies for different scenarios
Vontobel has used the occasion of the US elections to develop various index strategies that track companies which could benefit from the outcome of the elections: the Vontobel Democrat 2024 US Election Index and the Vontobel Republican 2024 US Election Index. Tracker certificates on the respective indices provide investors with instruments that allow them to invest easily and with just one transaction in companies that could benefit from the outcome of the US elections.
Both indices include companies that generate a significant amount of their sales in sectors that could benefit from the different political agendas of the Democrats and Republicans (see illustration above). Each index contains 30 companies, 20 companies selected by market capitalization in the respective sectors, and 10 smaller companies that are particularly active in the respective sectors.
The key difference between the two strategies lies in the presidents' political programs. Whereas Biden's agenda includes green energy, medical care and consumer goods for all, Trump is more likely to pursue the goal of a return to fossil fuels, stricter isolation of the country and local investment. Correspondingly, the composition of the two indices is different. An index fee of 1.25% p.a. is charged for the calculation of each index.
Vontobel Democrat 2024 US Election Index
Vontobel Republican 2024 US Election Index
You can find more information on the US election on vontobel.com