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21 Oct 2008

Presidential Elections & US Investments

Amidst the recent turmoil in the global financial markets one of the most influential and highly contested Presidential elections is taking place in the United States on the 4th November. With these elections rapidly approaching, the Association of Investment Companies (AIC) has collated the views of some investment company managers with high exposure to the US.

In general, the managers believe that the elections will have an impact on their US investments and the recent crisis in global markets will influence the election result. Russell Cleveland, manager of Renaissance US Capital commented, "The US Presidential elections will have an impact on the US stock market across all sectors. It appears that Senator Obama will win the election and the Democrats will gain in both the House and Senate."

A new President will bring with them a new set of policies and managers seem optimistic about the future of the US and its long term investment opportunities.

Peter Dicks, Chairman of Private Equity Investor said: "Yes, I believe the election will have an impact in the sense that it will remove an administration which has largely become a lame duck and more importantly it will remove uncertainty. No doubt the first 100 days will be significant especially, in my opinion, if Obama gets in.

"In our field, which is venture capital, we think this is potentially one of the very best times to invest in this field, Why? Venture is an all cash investment in an all equity asset class without a dollar of debt. If debt features at all; it is at a much later stage in the Company's life when it has significant sales and earnings. So, there is a no "damaged goods" aspect to this asset class which, in the current environment, must make it almost unique. And innovation is far from dead in Silicon Valley and other parts of the US especially in areas such as "cleantech" and along with all the other technology based areas of the venture capital world.

"We have been making new commitments to quality venture funds and are currently in the middle of raising a new Fund of Funds to enable us to do more in this area. We are very excited about the current timing and agree with one of our Partnership interests who believe this is likely to be a time of unprecedented investment opportunity."

Russell Cleveland, manager of Renaissance US Capital agrees commenting: "This is a good time to invest in the US market because I believe investors will view a change as good. The US will be withdrawing from Iraq and this will be very favourable to the stock market. So while a recession may be going on the stock market may be going up."

Tom Walker, manager of Martin Currie Portfolio Investment Trust, commented: "The result of the US presidential election, as always, is a significant world event. But these are extraordinary times. Fundamental economics and wider confidence remain the key to recovery - that is much more than one individual. We believe that much of the bad news of late is now discounted in equity markets and that, difficult though the immediate outlook appears, long-term investors should be rewarded from this point."

Garrett Fish, manager of JPMorgan American Investment Trust said: "History has shown that during times of severe stress in the markets there are decent buying opportunities. We are currently seeing multi decade lows in terms of sentiment and multi-decade highs in terms of volatility. If you are interested in buying high quality merchandise (shares) many are now on sale. Looking out over the next few years this should prove to be another example of buy on fear sell on greed."

David McCraw, manager of the Edinburgh US Tracker Trust plc has looked into past US elections with a particular focus on those that have taken place during a period of economic downturn. He said, "Historic analysis shows that US equities in 2008 have so far followed the same pattern that has occurred in past periods of slower economic growth and lower interest rates - namely that equity returns in an election year have been weaker than in the preceding year. However, in previous election years where such economic conditions prevailed, (1936, 1968, 1976, 1992 and 1996), returns from equities were in positive territory and that appears unlikely in 2008.

"Analysis of Presidential cycles since 1926 show that there may be grounds for being more optimistic - the average returns from the S&P500 have been positive in the first year of the Presidential term although the best returns have been generated in the third year of the four year cycle. However, given the headwinds now facing the US and global economy the first term of the new President may follow a similar pattern of rewarding investors who invest for the long term."

Aside from the market difficulties, a key issue for managers when considering the impact of the elections will be the policies surrounding climate change. Speaking on this subject

Walter Price, manager of the RCM Technology Trust said, "The platforms of the incumbent Republican president, Bush, and the leading Presidential candidate, Democrat Obama, are quite different. Obama believes in the beneficial effects of government policy, and this should matter in a number of areas relevant to Technology. For instance, Obama has pledged to address Global Climate Change and the need to eliminate the dependence of the USA on foreign oil imports. We should see a programme that builds upon the Investment Tax Credit (the package of tax measures designed for the solar energy sector) that was passed by Congress as a part of the rescue bill to encourage alternative energy generation, including new credits for electric, hybrid, and natural gas run cars and trucks; more funds for research into new energy sources; and credits for energy conservation efforts. We think this will spur the wind and solar industries in the US to become the largest in the world, but there will be a bias for those companies that locate their plants in the US and employ lots of US citizens."

Russell Cleveland, manager of Renaissance US Capital is also planning to take advantage of the alternative energy sector as well as US traded Chinese companies. He said: "We are positioning our portfolio to take advantage of the world as we see it. We are placing about one-half of our positions in US traded Chinese companies. These companies are growing rapidly and selling at very low valuations. The other areas we are concentrating on are related to alternative energy, i.e., solar, wind power, etc.; internet, software, medical technology and other areas that can do well in a slow growth economy."

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