How the Trump triumph can perk up all our portfolios

So, have you checked your investment portfolio yet? At such a pivotal moment as a US election result, it’s tempting to scrutinise how your nest egg has been affected – and to have a tinker based on what you think lies ahead.

After all, the action may be playing out across the pond, but there is no doubt Donald Trump’s game-changing win will have huge ramifications for all our futures.

Bold investors may spy investing opportunities amid the change and volatility – and take a punt with money they can afford to lose.

Our unparalleled Midas column, overleaf, has some excellent UK company ideas for such investors. Here on Mail+ you can read online some of the global companies that could benefit from a Trump win.

But, if you’re saving for the long term and looking to protect and steadily grow your wealth, stock picking may not be for you.

Here’s how to assess what a Trump win could mean for your portfolio and what – if anything – you need to do to keep yourself on course for the next four years and beyond.

1 Hold US shares– but under 60 per cent of your total

Whether elated or distraught at the Trump victory you should have a good chunk of US company shares in your investment portfolio.

The US stock market is simply too big to ignore. Its companies make up more than 60 per cent of the global stock market by value. What’s more, much of the recent growth has come from North American firms.

A good strategy to keep a handle on risk in your portfolio is to buy a bit of everything – investments from all around the globe and in all different sectors.

That way, if one area is struggling it shouldn’t have too much of an impact on your returns as it only makes up a small proportion of your total investments.

If you want a portfolio totally free of bias, that simply represents the global stock market, you would have about 60 per cent of shares in US firms. But most UK investors choose to hold extra in UK companies – known as a home bias.

And many investors have more or less in different sectors depending on which they expect to perform best over the long term.

Evangelos Assimakos, investment director at Rathbones Investment Management, explains: ‘How much you should allocate to the US depends on how much risk you want to take.

‘Around a quarter to a third of your exposure to the stock market is a good starting point. Unless you invest in the US, you will miss out on some of the biggest growth areas at the moment, such as technology companies.

‘The UK doesn’t have its own Microsoft, Google parent company Alphabet, or chipmaker Nvidia, for example.’

2 Market reactions can be misleading

Global financial markets responded rapidly to the news of Trump’s win. The S&P 500 index of the biggest US companies hit a record high, the dollar achieved its highest level in over four months, the gold price fell – and the cryptocurrency Bitcoin rose to a new record.

But don’t assume these initial market reactions are setting the tone for the next four years – they may not be a good indicator of the longer-term trends.

Damien Fahy, founder of personal finance website Money To The Masses, says: ‘Long-term investors shouldn’t have a knee-jerk reaction to what is happening in markets right now. History and their own experience (they probably invested through Trump’s first term in office), should teach them to cut through the noise surrounding the election outcome.’

Fahy gives the example of the US dollar, which surged on the news of Trump’s victory as it did when he won eight years ago.

‘If we go back to 2016, the pound tumbled against the US dollar after Trump’s first election victory and by January 2017 it was just above $1.20,’ he says. ‘Yet by January 2018 the pound was above $1.40, before ultimately falling back. A Trump victory doesn’t automatically mean the US dollar will strengthen.’ Thomas Becket, co-chief investment officer at Canaccord Genuity Wealth Management, sees a similar trend in the green renewable technology sector, an area that Trump has expressed dislike for. He prefers fossil fuels.

‘Companies in this sector were among the worst performers when the election result came in,’ says Becket. ‘But I wouldn’t necessarily extrapolate that into the future.

‘Under the first Trump administration, the best performing sector was renewable technology. Ultimately, most of these companies are achieving the profits that they said they would, and if investors liked them three years ago, there must be even more to like now because they are cheaper.’

3 Stronger US dollar may give double boost

A powerful US dollar against sterling is bad news for Britons holidaying in the States.

And there is no guarantee that the recent surge in the dollar will be sustained.

But, if the dollar does remain strong, your portfolio could profit. That’s because if you buy an investment in US dollars and the currency strengthens, you will benefit both from any increase in the investment returns and from its higher value once changed back into pounds again.

Darius McDermott, managing director of investment research agency FundCalibre, says: ‘DIY investors often overlook the implications of currency fluctuations, but they can significantly impact portfolios.

‘For UK investors holding US dollar-domiciled assets, the strengthening dollar against the pound enhances the value of those investments at the point of sale, with a favourable exchange rate when converting back to sterling.’

However, bear in mind that the advantage can reverse if the dollar weakens, making non-UK investments just that bit riskier.

That’s one of the reasons why UK investors tend to have a home bias, so that they are earning income in the same currency that they spend.

4 Check which US companies you hold

If you’ve not checked on your US holdings for a long time, there is a good chance you have massive holdings in a very small number. That is because a handful of companies have driven most of the growth over the past few months.

The so-called Magnificent Seven companies (Nvidia, Microsoft, Alphabet, Apple, Amazon, Meta and Tesla) make up about a third of the value of the top 500 companies in the US.

It makes sense to hold them in your portfolio – you are likely to by default if you have invested in a US or global fund. But make sure you are holding a proportion that you are comfortable with.

Cannacord’s Becket adds that a broader set of companies may benefit from a Trump government. ‘There could be greater participation in the rally from some sectors that have lagged behind for so long, such as the banks and smaller companies,’ he says.

Becket doesn’t recommend simply buying a large number of bank shares, but says investors should check they have a breadth of US companies. Evangelos Assimakos agrees. ‘Every party comes to an end and the value of these seven companies can’t keep rising for ever,’ he says.

5 Prepare for higher inflation

We do not know yet which of the policies president-elect Trump has suggested he might bring in, he will actually carry out.

But yields on US and UK government debt – known as Treasuries and gilts respectively – have risen following his election, suggesting that investors think his actions will cause higher inflation in the UK and US.

Measures announced in last month’s UK Budget, such as the increased minimum wage and the National Insurance rise for employers, may also push inflation higher.

It’s worth thinking about how higher inflation might affect your portfolio in the future.

Becket suggests that shorter- dated gilts and Treasuries may be a good option so that you’re not locked in a lower yield if rates do rise. ‘The yield on ten-year gilts is around 4.5 per cent,’ he says. ‘If you lend to the UK government over 30 years instead of ten, you get very little additional premium – around 30 basis points – so I don’t think it is a risk worth taking.’

If you are worried about higher inflation, Becket also suggests investments that have inflation protection, such as Treasury Inflation-Protected Securities (TIPS). These are issued by the US government and are linked to inflation.

6 Hang on to your gold investment

Gold can be a useful element of an investment portfolio – it may not pay any income, but it can work as a store of value.

Its price fell immediately after the election result, but that doesn’t mean that you should ditch your holding.

Assimakos says the investment case remains as strong, and the sell-off may have been driven in part by investors taking profits. ‘Investors may have been following the strategy “Buy the rumour, sell the fact”. In other words, they bought gold on the expectation that Trump would win, which drove up the price, and then sold off to make a profit.

‘Gold works as a long-term preserver of value, especially when governments introduce policies that create inflation, which erodes the purchasing power of their citizens.’

7 You may not have to do anything

It is a good idea to go through your portfolio every few months to make sure that your goals are on track and your strategy is working.

But Rathbones’ Assimakos warns that ‘getting caught up in the noise and the headlines can lead to your own demise’.

He warns against overtrading, which can lead to higher costs and the risk of making knee-jerk reactions that you live to regret.

‘You may call it right, but you could also, for example, follow the herd and sell gold and then watch as the price rises again and you have to chase it back up again to buy back in,’ he says.

Instead, he recommends holding a portfolio of quality stocks and being reassured that financial markets tend to go up in the long term. You may not have to take any action – and any changes you do make should be carefully thought through to fit your long-term strategy.

Damien Fahy adds that market volatility usually subsides within four days of an election result.

‘History also shows us that ultimately it’s the economic backdrop (whether there is a recession), black swan events (difficult to predict, high-impact situations like the pandemic) and central bank policy – which are likely to have the biggest sway over the direction of stock markets and bond markets, both in the US and globally, during the next presidential term,’ he says.

• Rachel.rickard@mailonsunday.co.uk