TOPSHOT - US President Donald Trump leaves after a Hispanic Heritage Month event in the East Room of the White House October 6, 2017 in Washington, DC. President Trump invited over 200 Hispanic business, community, and faith leaders, and guests from across the country to join in the celebration of Hispanic Heritage Month. / AFP PHOTO / Brendan Smialowski (Photo credit should read BRENDAN SMIALOWSKI/AFP/Getty Images)
President Donald Trump © AFP

The Trump presidency is arguably the ultimate investment challenge. Its potential sphere of influence is vast, spanning everything from individual company share prices to foreign exchange rates. Its policies can be unpredictable and its musings are often blasted out with zero warning via micromessaging platform Twitter.

In fact, the potential fallout from the Trump presidency is a challenge so big that it has left many wealth managers grimly aware of their limited capacity to immunise their clients’ riches.

“For those concerned about potential implications from Trump, there’s no perfect bulletproof solution,” says Mike Ryan, chief investment officer for the Americas for UBS Global Wealth Management, noting that “some of the obvious choices may not have worked at all”.

One of those seemingly obvious choices was to de-risk portfolios after Trump’s 2016 election. Ryan argues investors would have quickly discovered that was “precisely the wrong thing to do”, since it would have taken them out of US stocks and bonds right before a lucrative period of low volatility and high returns — conditions that Trump has argued are in fact a sign of confidence in his presidency. This, in turn, added further fuel to the bull run for US equities that had already started in 2009 and that led the S&P 500 index to hit record highs in recent weeks.

But even though there is no means to completely hedge away Trump risk, wealth managers still have plenty of ideas for ways to lessen investors’ exposure to the ups and downs of what may become known as America’s most unpredictable presidency.

PORTAGE, IN - MARCH 15: A slab of steel, 8 inches thick, is heated and rolled into a coil of steel, 1/10 to 3/4 inches thick, at the NLMK Indiana steel mill on March 15, 2018 in Portage, Indiana. The mill, which is projected to produce up to 1 million tons of steel from recycled scrap in 2018, is considered a "mini mill" by U.S standards. NLMK Indiana is a subsidiary of NLMK, one of Russia's largest steel manufacturers, responsible for nearly a quarter of Russias steel production and producing nearly a quarter of the worlds slab steel. Steel producers in the U.S. and worldwide are preparing for the impact of the recently-proposed tariffs by the Trump administration of 25 percent on imported steel. (Photo by Scott Olson/Getty Images)
Steel from an Indiana mill. The president says his steel tariffs on imports are saving the US industry © Scott Olson/Getty Images

Garrett Roche, a private wealth manager at Uxbridge Capital in New York City, has been buying US assets not affected by the punitive tariffs aimed at reducing the US trade deficit with China and others. He favours small-caps, biotechs and some telecoms and media companies. The Russell 2000 US small-caps index was up 10.8 per cent in the year to the end of August, while the S&P 500 rose 6.2 per cent over the same period. “I’ve been contemplating immunising the trade war risk for some time, as the market had been — and to some extent is still — underestimating the potential damage that it presents,” he says. “It is still seen as a tail risk . . . where I see it as more certain than that.”

Interest rates, which despite recent hikes in the US are still well below historic norms, have made cash an unpopular option for many investors. However, Mehul Patel, investment director at UK-based Stanbridge Wealth, says he recommends that clients with shorter-term mandates retain some cash to protect them from any fall in asset prices.

“Major asset classes look tired, and therefore retaining some dry powder might not be a bad thing,” he argues.

Other wealth managers are advocating riskier strategies to hedge against the presidency.

Ardavan Mobasheri, chief investment officer for Richmond, Virginia-based Acima Private Wealth, suggests investors can use everything from cryptocurrencies to derivatives and hedged currency strategies to minimise Trump’s policies’ potentially disruptive impact on their wealth.

The cryptocurrency play he envisages is linked to Trump’s tough stance on Iran, where he is renewing sanctions and calling on other countries to break trade ties. Mobasheri acknowledges that most investors cannot get direct exposure to Iran’s debt or equities market, but he maintains it is still possible to take an investable view on how Trump’s Iranian standoff is going to play out.

“One interesting Iranian trade is, if we’re going to place the sanctions in full force by November 4, it’s going to cut the Iranian government’s access to hard cash significantly,” he argues. “An interesting way of bypassing that, especially for large institutions and governments . . . is cryptocurrency,” he adds, on the basis that the government could start using it as an alternative funding mechanism, pushing the price up globally.

The shadow of a man falls on a Persian carpet layed out in the rug bazaar in Tehran, Iran, on Monday, Jan. 15, 2018. The U.S. president plans on sticking with an agreement that suspends American sanctions on Iran in return for limiting its nuclear research, according to two administration officials familiar with the matter. Photographer: Ali Mohammedi/Bloomberg
A rug bazaar in Iran, as Trump renews sanctions on Tehran © Ali Mohammedi/Bloomberg

A domestic US option, Mobasheri says, is investing in US food companies, which, he believes, will enjoy “relatively attractive raw materials costs for some time” in the current environment.

UBS’s Ryan has a less exotic list of ways to shield a portfolio against Trump’s influence. The first thing he suggests is becoming less exposed to “some of the more vulnerable” emerging markets that may suffer from Trump’s protectionism. UBS’s house-view portfolio has already removed its “overweight” focus on emerging markets.

He says investors concerned about Trump’s influence could also explore currencies that are “less directly affected by a trade conflict”, such as the Japanese yen and the “more defensive currencies during periods of risk off in the market”.

The third strand is to increase exposure to what he calls “risk-free” fixed-income assets, such as 10-year US government debt, since “if markets become more volatile amid heightened trade tensions and economic uncertainty, government bonds will likely perform a bit better [than other higher-risk investments]”.

His final piece of advice is to focus more on domestic service-oriented sectors that are less vulnerable to trade skirmishes, such as utilities, financial services and healthcare.

Another option for investors is to ignore the noise coming out of the White House altogether. In Switzerland, Andreas Clenow, chief investment officer of ACIES Asset Management and author of the international bestseller Following the Trend, argues that his favoured investment strategy — to follow trends — is one of the areas that is “not particularly affected” by the Trump presidency.

Trend-following commodity trading advisors (CTAs) use computer-driven algorithms to decide whether asset prices are on an upwards or a downwards trend. They then buy assets whose prices are rising and sell or short those whose prices are falling.

The investment style enjoyed a stellar run after the 2008 financial crisis, since its returns were uncorrelated with plummeting global stock markets.

A pile of coins representing Bitcoin cryptocurrency sit grouped together in the U.K. Photographer: Chris Ratcliffe/Bloomberg
Cryptocurrencies investments can possibly be used to minimise Trump’s policies © Chris Ratcliffe/Bloomberg

“Obviously, nobody can predict what tweet [from Trump] comes out at 3am tomorrow morning, but those don’t seem to have a larger market impact,” says Clenow. “The protectionist policy and so on, it’s not something that changes market direction overnight.”

Clenow says his CTA trend-following fund, which manages a “fair nine-figure” sum, has experienced “very good flows” since Trump’s election.

Yet CTA trend-following funds have had a mixed performance over the past year. The benchmark Société Générale Trend Indicator index, which calculates the daily rate of return for a pool of trend-following hedge funds, is down almost 4 per cent in the year to date and roughly flat since Trump’s November 2016 election, suggesting little correlation with the S&P 500 rally.

Clenow says his firm’s US merchant finance business fund has proved Trump-proof so far. The $100m fund provides medium-term credit of small amounts to thousands of American companies. “There we see no impact [from the presidency], positive or negative, it just doesn’t matter,” he says.

And, while most fund managers from a June survey from Bank of America Merrill Lynch are expecting a US recession in the second half of 2019 or first half of 2020, Clenow is upbeat.

He says: “We’re not in agriculture or steel or something like that where there are major impacts. We’re dealing with normal businesses, the proverbial pizza guy in Chicago and it’s just not impacted, unless we see a crisis . . . [and] nobody seems to be expecting that.”

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