This theme is the belief that a Trump presidency will focus on generating a higher level of economic growth. What that probably means is more government borrowing and higher deficits to pay for a programme of infrastructure spending as well as a reduction in taxes and less red tape. All of these are potentially expansionary and will favour the equity market.
I’m going to play this equity-friendly world with one of my favourite global equity funds, the Rathbone Global Opportunities Fund. James Thomson, fund manager, has a slightly more defensive approach than you might want in this kind of growth environment but it’s a fund I’d be happy to hold throughout the cycle.
Old Mutual Asset Managers
This theme is the expected outperformance by developed stock markets over those in the emerging world and in particular outperformance by the US. Although the Rathbone fund has a high exposure to the US, I also want to have a pure-play American fund in my portfolio.
The one I’ve chosen is the Old Mutual North American Equity Fund. It’s a slightly unusual US fund in that its approach is much more quantitative than its traditional actively-managed peers. Probably a good thing in a market in which it’s notoriously difficult to gain a competitive edge.
Part of the new growth narrative is a shift in investor focus away from so-called defensive stocks to more cyclical companies and that’s theme three this year. Defensives do well in more difficult economic environments. But if the growth rate picks up, investors are better off backing more cyclical shares.
My choice of cyclical fund is the Fidelity Special Situations Fund, run by Alex Wright. He’s unafraid to buy the shares other investors don’t like, so he is a good manager for anyone looking to rotate out of the ‘expensive defensives’.
The final theme is a consequence of America’s growth story – rising US rates and a stronger dollar. Japan is likely to be one of the biggest beneficiaries of this trend.
The fund I have chosen to play this theme is the Schroder Tokyo Fund. I’m going to invest in the currency hedged share class. This will work out if the yen does indeed weaken further from here because I’ll benefit from a rise in the Japanese market (it loves a weak currency) without losing anything on the foreign exchange conversion. Fund manager Andrew Rose is an old Japan hand who knows this market well.