Making portfolios great

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Making portfolios great.

Welcome to 2017, it's good to be talking to you again. We haven't been in touch since mid-December; not that we would have got a word in, what with the countless column centimetres devoted to all things Trump.

With each passing week I am asked "what do you make of this Trump thing?" The question is asked not with a social or moral response in mind, but rather, what does Trump's presidency mean for investment markets and economic matters? My response is usually short, "I don't know, and neither does anyone." I don't mean to sound rude, but my view is by all means have an opinion on the man, his personality, his hairstyle and his utterings but try not to let that opinion, or anyone else's, spill into your investment thinking.

Of course Trump is big news; most newly elected US Presidents are. He's controversial, but arguably, so was President Barack Obama when he took possession of the White House keys eight years ago.

Obama's reign wasn't expected to be good for share markets as he was not exactly pro-business. But guess what? The US share market lifted nearly 300% during his time in office.

There's no denying Trump is pro-business, and that explains why the US share market rallied after his election. Though, as with all presidents, it's the doing not the talking that matters in the end. So far, he's walked the talk on several significant campaign issues such as the Mexican wall and immigration restrictions, but it remains to be seen whether — and how soon — Trump implements the corporate and personal tax cuts that should stimulate economic growth and underpin the US share market. We are going to be distracted by politics for a long while. Trump has only begun to unveil his policies and you just know there's a lot of rhetoric to bombard us yet. We've got a few European elections happening this year, as well as our own domestic election now set for September, so political distractions are here to stay.

But being fixated with politics, just like being fixated with anything really, can lead to a loss of perspective and a focus on the wrong things, leaving the right things unattended.

One financial columnist said recently, "Trump's stated objective is to Make America Great Again. Our objective should be to make our portfolios great, all the time." I agree.

With that in mind, our focus has been on the businesses we own in your portfolios, the fixed income investments we own (as the "safer" assets within your portfolios) and the mix of currencies and asset classes that combine to give you diversification.

Each single investment and each asset class will at some point be affected by politics, as interest rates respond to economic trends and policies. Our goal is to be positioned correctly so that we are on the right side of the trend, or at least, if our investments temporarily fall out of favour, we remain confident that the intrinsic value is intact and they remain appropriate assets to own over the long term.

It pays to remember that just as we are getting our heads around the Trump effect on our clients' portfolios, the managers of our portfolio companies are doing the same thing. They too will be positioning their businesses to ensure they remain competitive and that their strategies will withstand whatever comes out of a President's mouth or keyboard.

I read recently that corporate leaders in the US are "learning to live with Mr Trump, or 'normalising', him in the current jargon". This is partly necessity — his threats could do them damage — and it's partly genuine enthusiasm as he plans to cut their personal and their corporate income taxes. While analysts, media and Democrats remain suspicious and even hostile towards Trump, I am at least pleased (with my investor hat on) that corporate America is coming to terms with the new political regime.

We don't need to like Trump or his politics — and please do not read any political view into my comments; I don't have one. Maybe we just need to 'normalise' him and return our focus to the more important parts of our lives.


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