Jupiter| Frankfurt, 09.11.2016.
Ariel Bezalel, manager of the Jupiter Dynamic Bond SICAV fund, comments on the outcome of the US presidential election:
Donald Trump’s victory has raised the level of market uncertainty we can expect over the coming months and as such is likely to prove negative for risk assets (equities, credit spreads) in the short term. Conventionally, a risk off environment, in this case the end of the US election campaign resulting in a Trump victory, should benefit US Treasuries short term. However, medium term this is unlikely to be the case since Trump has been particularly vocal on the need to boost fiscal spending, saying he wants, at the very minimum, to double Hillary Clinton’s proposed $275bn infrastructure programme, a measure he said he would fund via debt issuance. A debt-funded infrastructure programme of this scale could help to stimulate the economy and be quite inflationary – an environment that would be negative for rates and fairly positive for equities. Therefore, longer term we expect the US yield curve to steepen.
We did not position our portfolio specifically to benefit from a Trump or a Clinton win. However, generally, it is our belief that monetary policy has reached its limits, whether it be in the US, Europe or Japan among others; future stimulus is very likely to be fiscal in nature. Trump is likely to deliver an expansionary policy to encourage economic growth. It would have been the same if Clinton had won. This shift in thinking about the nature of stimulus going forward was one of the key reasons why we reduced the duration of the portfolio significantly since July from 5.1 to 2.9 years today. We did this mainly by selling our medium and long dated US Treasuries and initiating a short position in the bund (around 10% of the portfolio) back when they were trading with negative yields.
Additionally we have:
Put in place some credit spread hedges (2.16% North American HY CDX and 2.95% European Crossover).
Trimmed the longer dated investment grade and high yield bonds we own. 50% of the portfolio has a maturity under
2 years.
Positions in gold mining convertibles (1.9% of the portfolio). These should help in a risk-off environment.
