How Magellan are positioning for a Biden win
Magellan chief investment officer Hamish Douglass has outlined how the firm is preparing the Magellan Global fund in expectation of a win for Democratic presidential nominee Joe Biden.
The US election was set to take place on 3 November and currently, Biden was forecast to beat Republican and sitting President Donald Trump.
While Douglass said investors “did not need to panic” about a potential change in potential leadership, there were steps the firm was taking in their portfolios.
In a webcast, he said: “We have to be mindful as there will be an increase in the corporate taxation rate under Biden so we have less exposure to US companies. Democrats will push through healthcare reform and further regulate drug pricing so we have minimal healthcare exposure, we only have one healthcare company which is [Swiss firm] Novartis which has only modest exposure to the US healthcare risk.
“There’s a huge decarbonisation agenda and the Democrats have been clear that you will see a lot of investment in renewables under Biden. We are positively skewed to that happening and have 10% invested in three US utilities as they will benefit from this investment and have been performing well.”
While a Democratic victory was forecast, he admitted there could be “extreme market volatility” in the short term if Trump tried to challenge the result.
As well as the presidential election, Douglass said it was important to watch which party was in control of Senate. The Senate was currently held by the Republican party but Democrats would only need four extra seats to gain control. If Biden won the presidential election, this would give the Democratic party a ‘trifecta’ of control in the White House, Senate and House of Representatives.
If this was the case, the Democrats could potentially have the Senate rules changed to give them more power.
Douglass said: “The Democrats have the lower house and Biden is expected to take the White House but it is a much closer call which party will win the Senate. If Biden wins and Democrats get the lower house as well then the markets won’t react as the Republicans will try to block most of the radical legislation that would be put through.
“If Republicans retain the Senate then nothing will happen as there will be gridlock in Washington and the market will be delighted with that outcome.
“But if Democrats look to change Senate rules and remove filibustering, that could spook the markets as they would wonder what the agenda was. We are unlikely to see a radical Left agenda from the Democrats but markets might still be concerned and there could be a negative reaction.”
The Magellan Global fund returned 7.6% over one year to 30 September, versus returns by the global sector of 3.6%, according to FE Analytics.
Performance of Magellan Global fund versus global equity sector over one year to 30 September 2020
AUTHOR
Laura Dew
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