“History doesn’t repeat but it does often rhyme.”
With the presidential election weeks away, many investors are wondering what outcomes might emerge and how their portfolios should be positioned.
Our view: light offense. Stay invested, but brace yourself for volatility in the case of top-down drivers fluctuating. We don’t expect peak-COVID volatility levels which were uniquely extreme, but there should be some turbulence. If you have sideline cash, be prepared to deploy it on pullbacks. Full hedges remain on.
Attached is the full memo, along with a 90-second video summary from our Chief Investment Officer.
As a disclaimer, we have no edge in predicting political outcomes. As your investment manager, we focus on the upside and downside drivers that macroeconomic events like elections can have on your portfolio. Thus, here is our gameplan for you.
What matters for markets when it comes to the post electoral period? Three things: stimulus, taxes, and COVID-19.
We believe the first two issues -- stimulus and taxes -- are the ones that electoral results will most likely impact, but will roughly offset each other. No one knows for certain, but that's our guesstimate. Full details in the memo.
The third issue -- COVID-19 (and the timing of a broader vaccine rollout in the U.S.) -- will likely be a greater driver of the 2021 market environment than any federal policy proposal. Investor sentiment seems generally positive on the likelihood of a successful vaccine sometime in Q1-Q3 2021. However, we see risks of further volatility should this timeline get pushed out further, which is always a possibility given the unpredictable nature of clinical trials.
If / when these drivers collide to create excess volatility in the coming weeks, we believe they will offer you exceptional opportunities to deploy cash and amplify your returns. The markets hate uncertainty, which is why the patient tend to be rewarded for owning stocks through that uncertainty.
So here's your gameplan:
Continue playing “light offense.” Stay invested, and avoid shifting to cash which would generate tax consequences in taxable accounts. Your portfolio remains fully hedged ahead of these potential bouts of volatility.
If you have cash on the sidelines, prepare to deploy it on a pullback.
Finally, remember one of the core pillars of our investment philosophy is “business quality.” We only invest in businesses we believe can thrive during all environments, not just bull markets. Whatever comes from the election, we feel great about how Flagship and Opportunities are positioned for the years ahead.
Let us know if you have any questions,