2020 Election: A Brief Guide for Equity Investors | Lord Abbett
Image alt tag

Error!

There was a problem contacting the server. Please try after sometime.

Sorry, we are unable to process your request.

Error!

We're sorry, but the Insights and Intelligence Tool is temporarily unavailable

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.

Error!

We're sorry, but the Literature Center checkout function is temporarily unavailable.

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.

Tracked Funds

You have 0 funds on your mutual fund watch list.

Begin by selecting funds to create a personalized watch list.

(as of 12/05/2015)

Pending Orders

You have 0 items in your cart.

Subscribe and order forms, fact sheets, presentations, and other documents that can help advisers grow their business.

Reset Your Password

Financial Professionals*

Your password must be a minimum of characters.

Confirmation Message

Your LordAbbett.com password was successully updated. This page will be refreshed after 3 seconds.

OK

 

Institutional Perspectives

We surveyed Lord Abbett investment professionals for their views on the potential implications of the 2020 election for select areas of the equity market.

Read time: 5 minutes

 

Source: Lord Abbett

 

Last week, Market View looked at the upcoming November 2020 U.S. election and its potential implications for fixed-income investors. Now, we turn to key segments of the U.S. equity market. Once again, we surveyed Lord Abbett investment professionals for their viewpoints; this time, our roster of experts included Partner and Portfolio Manager Thomas O’Halloran, and Portfolio Managers Darnell Azeez, John Hardy, Devesh Karandikar, Jeffrey Rabinowitz, and Servesh Tiwari.

Innovation Growth Equities

In this remarkable year, with COVID-19 coinciding with a U.S. presidential election, there are two themes we are following. First, we are rebounding out of a deep, forced recession. That makes some cyclical stocks look very attractive, in our view, and we own several of them. Trucking companies benefit from e-commerce. Virtual real estate sites benefit from a housing recovery. Payments companies that are focused on retail benefit as retail rebounds.

The second theme is the rapid rise of what we call the “work-from-home” (WFH) stocks—those companies whose products and services, fueled by advances in technology, have enabled companies and their employees to conduct business effectively during a pandemic. So today, as innovation investors, we have many more companies to invest in that benefit from not only WFH considerations, but cyclical trends.

How does the 2020 U.S. presidential election tie into this? As we examine potential outcomes, we have identified one intriguing scenario: If we have a surprise, and President Donald Trump, who at the moment is trailing in many national polls, wins the election, it could result in a big rally for those cyclical stocks because of Trump’s emphasis on less regulation of U.S. businesses, and the perception that odds of an economic recovery might be greater. And that could lead to outperformance, temporarily, of value over growth. Whether growth or value, WFH or cyclical, in the near term it's a good debate.

In the intermediate term and the long term, regardless of which party captures the White House, we believe that innovation growth equities, as exemplified by the WFH stocks, have the potential for strong performance as the technological revolution continues to unfold.

Durable Growth Equities

We believe the areas likely to be in focus during the 2020 U.S. presidential election are U.S. tax policies, regulation of mega-cap, tech companies, the U.S. relationship with China, healthcare reforms, and the potential for a boost in infrastructure spending.

An infrastructure spending plan has been supported by both parties, but political considerations may make reaching an agreement on how to fund the effort difficult. Post-election, there could be some bipartisan agreement on a further examination of the biggest technology names for privacy or antimonopoly concerns, so this issue likely will remain with us for some time.

China is a wildcard. We know Trump has taken a harder line on Beijing in terms of trade, technology, and security; it is not clear that former Vice President Joseph Biden, if he wins, will take a softer approach, but it seems likely that he would look to repair aspects of the relationship.

A prospective Democratic sweep of the White House and Congress also has broader implications for bigger policy moves in areas such as taxes and healthcare we believe; this is similar to Trump's early presidency, where Republican control of the White House and Congress enabled tax reform and some rollbacks of the previous administration’s healthcare reform legislation.

How have we responded to these developments? We have reduced our portfolio exposure to healthcare services in the past few months and exited a position in a bank exposed to student lending, as private-sector education finance could potentially see significant changes should Biden win and Democrats take greater control of Congress.

Healthcare Equities

As noted earlier, healthcare continues to be a top political issue for Americans; as such, the rhetoric around elections has become louder. The Healthcare investment team continues to monitor the political environment and the debate surrounding healthcare policy as the United States gets closer to Election Day (November 3, 2020). Recent polls from realclearpolitics.com suggest Biden has a nearly 60% chance of winning the election versus Trump, and a greater than 50% probability of a Democratic sweep of the White House and both houses of the U.S. Congress

So as the 2020 U.S. election draws near, there are three major areas of healthcare being discussed: funding, affordability, and access. (We will examine these issues in greater detail in an upcoming edition of Equity Perspectives.)

As for portfolio positioning, we continue to suggest an overweight in Biotechnology, and Tools and Diagnostics, while we recommend an equal weight in Medical Devices and an underweight in Healthcare Providers and Services and Pharmaceuticals. Within Biotechnology, we tend to focus on targeted therapies intended to address unmet medical needs. In Life Science Tools and Services, we are focused on companies in the bioprocessing space and tools that enable more efficient drug development and discovery.

Medical devices tend to be insulated from healthcare regulatory and policy issues but given the slowdown in medical procedures due to COVID-19, we believe an equal weight is prudent. We have a favorable view of providers of minimally invasive therapies and diabetes treatment devices. 

Dividend Equities

We think the near-term issues for the overall U.S. equity market are going to continue to be COVID-related, with investor attention remaining fixed on possible new outbreaks, the likelihood of renewed shutdowns, and any progress made on the medical side. We believe that there is some likelihood of a rebound with cyclicals as we get clarity on potential “back to normal” outcomes.

The upcoming Presidential election brings forth several scenarios, including the potential for a corporate tax break rollback, infrastructure stimulus plans of various sizes, the possibility of a lessening in tensions for U.S. relationships with China and other nations. In addition, there could be a heightened focus on “public option” healthcare plans, pressures on drug pricing, stepped up oversight of major banks, and stricter environmental regulations.

With that being said, we do not believe the election will have a material impact on companies’ dividend policy. However, we do think some industries may face structural headwinds on profitability. In our view, quality companies—those with long-term histories of consistent earnings growth and dividend payments--have the potential to overcome any election-related headwinds. As such, we think maintaining a focus on stock selection, while avoiding investment decisions based purely on election outcomes, is a sensible approach in the runup to the 2020 vote, and beyond.

Value Equities

This year’s U.S. election has the potential to affect many companies within the value realm. Outside of the presidential election, control of the Senate and whether the filibuster remains in place following the election1 are perhaps even more influential. Under a second term for President Trump, we are likely to see “more of the same,” including maintaining the lower corporate tax rates put in place in 2017 and a continued emphasis on deregulation. Under a Biden administration, assuming the Senate changes hands and the filibuster is removed, we believe it is likely that a significantly different set of priorities could emerge, including expanding healthcare coverage, increasing corporate taxes, and heavier regulation.

Within value equities specifically, there tends to be more representation from heavily regulated industries such as financials, materials, and energy, all of which performed quite well in the immediate aftermath of Trump’s 2016 election. Within healthcare, there are select companies that likely would benefit from greater consumer access to insurance should a future Biden administration be able to expand enrollment, whereas other companies may suffer from greater state presence in the marketplace.

We’d like to emphasize that we tend to evaluate opportunities on a single-stock basis and do not make any wholesale portfolio positioning decisions based on political outcomes. While many of our portfolio companies certainly may be affected in one way or another, we continue to look for idiosyncratic opportunities in our coverage universe that are attractively valued under most potential outcomes.

 

1Filibuster is a term used to describe the continuance of debate in the U.S. Senate to forestall or prevent the passage of new legislation. In the Senate, the cloture rule requires 60 votes (out of 100) to cut off debate on most measures. Recent media reports have indicated some support within the Democratic party for eliminating the filibuster.

 

A Note about Risk: The value of investments in fixed-income securities will change as interest rates fluctuate and in response to market movements. Generally, when interest rates rise, the prices of debt securities fall, and when interest rates fall, prices generally rise. Fixed-income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Lower-rated securities are subject to greater credit risk, default risk, and liquidity risk. Credit risk is the risk that debt issuers will become unable to make timely interest payments, and at worst will fail to repay the principal amount. Treasuries are debt securities issued by the U.S. government and secured by its full faith and credit. Income from Treasury securities is exempt from state and local taxes. Although U.S. government securities are guaranteed as to payments of interest and principal, their market prices are not guaranteed and will fluctuate in response to market movements. The municipal bond market may be impacted by unfavorable legislative or political developments and adverse changes in the financial conditions of state and municipal issuers or the federal government in case it provides financial support to the municipality. Income from the municipal bonds held could be declared taxable because of changes in tax laws. Certain sectors of the municipal bond market have special risks that can affect them more significantly than the market as a whole. Because many municipal instruments are issued to finance similar projects, conditions in these industries can significantly affect an investment. Income from municipal bonds may be subject to the alternative minimum tax. Federal, state and local taxes may apply. Investments in Puerto Rico and other U.S. territories, commonwealths, and possessions may be affected by local, state, and regional factors. These may include, for example, economic or political developments, erosion of the tax base, and the possibility of credit problems. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors, and each investor should evaluate their ability to invest long term, especially during periods of downturn in the market.

Statements concerning financial market trends are based on current market conditions, which will fluctuate. All investments involve risks, including the loss of principal invested.

This material is provided for general and educational purposes only. The examples provided are for illustra­tive purposes only and are not indicative of any particular investor situation.

This Market View may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual returns or results will not be materially different from those described here.

The information provided herein is not directed at any investor or category of investors and is provided solely as general information about our products and services and to otherwise provide general investment education. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as Lord, Abbett & Co LLC (and its affiliates, “Lord Abbett”) is not undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity with respect to the materials presented herein.  If you are an individual retirement investor, contact your financial advisor or other non-Lord Abbett fiduciary about whether any given investment idea, strategy, product, or service described herein may be appropriate for your circumstances.

The opinions in Market View are as of the date of publication and are subject to change. Additionally, the opinions may not represent the opinions of the firm as a whole. The document is not intended for use as forecast, research or investment advice concerning any particular investment or the markets in general, and it is not intended to be legal advice or tax advice. This document is prepared based on information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy and completeness of the information.

MARKET VIEW PDF


  Market View

ABOUT THE AUTHORS

image

Please confirm your literature shipping address

Please review the address information below and make any necessary changes.

All literature orders will be shipped to the address that you enter below. This information can be edited at any time.

Current Literature Shipping Address

* Required field