Santa likes election certainty
Milford funds continue to deliver strong returns, helped by the performance of underlying assets. Stock markets responded positively to the US election result – the US dollar rallied, and bond markets finished the month modestly higher. Under the surface of the stock market, there continues to be large swings in individual company stock prices.
The rally in stock markets post the US election can partly be attributed to investors breathing a sigh of relief that the outcome was clear cut (i.e. no contested result). However, the policy implications of a change in government carry significant ramifications for the outlook across different industries. One clear beneficiary of deregulation is the banking sector – we have been adding to positions in banks, and this has been rewarded by the performance of shares in companies such as JP Morgan (+12.5%) and Bank of America (+13.6%). Some other notable performers last month were software company Fiserv (+11.7%) and online trading platform Interactive Brokers (+25.2%). Conversely, a Trump victory was not good news for the healthcare industry. Whilst some of our stocks in this sector were negatively impacted, we have been reducing exposure recently.
Australian and NZ shares also had a solid month, up 3.8% and 3.4% respectively*. We continue to invest heavily in the UK, where valuations are attractive and falling interest rates should help domestic growth. Our investments are tracking well with NatWest Bank (+9.5%) and recent addition telecommunications company BT Group (+15.2%) performing well.
Trump’s pro-America agenda is clearly US dollar positive. We have had increased exposure to the US currency, which has helped returns recently, although we have been reducing our positions into the strength. One risk of a Trump victory was a weaker bond market. Whilst this remains a risk, the bond market was reasonably well behaved in November, recovering from weakness early in the month to finish modestly higher.
Into the end of the year, investor expectations are confidently predicting a continuation of the rally in share markets. We are positioned for this outcome in our funds, but also wary of high valuations and risks from talks of tariffs from the self-proclaimed “Tariff Man”.
*ASX 200 and NZX 50 index returns.
