How Are Active Boutique Managers Thinking About the 2024 U.S. Presidential Election?

We know that the 2024 U.S. presidential election is a consequential one, with impacts that extend well beyond November 5^th. From an active investing point of view, our team at Harbor wanted to offer some perspectives for our clients about how our strategic investment partners are viewing things.

Our guidance is not to get distracted by the headlines, interviews, and scrolling. Elections are important for several reasons, but they’re largely noise for advisors and your clients. Don’t take your eye off the ball–continue to put together thoughtful, active portfolios for your clients and take a long-term, risk-managed approach. As always, please reach out to your Harbor investment consultant if you have any questions as you navigate volatility and continue to focus on serving your clients well.

At Acadian, we recognize that the 2024 U.S. presidential election carries the potential for significant market repricing, similar to other high-impact geopolitical events such as Brexit or previous U.S. elections. As such, we are carefully monitoring how potential outcomes may influence our portfolios. While our investment philosophy is rooted in systematic risk management, we take a more tailored approach to mitigate specific risks in situations like this election. Our focus remains on neutralizing portfolio sensitivities to possible election outcomes without overexposing our investments to a particular result.

The Impact of Key Policy Areas

Policy differences between the candidates, particularly regarding tax and regulatory policies, have the potential to be paramount to markets. While both candidates share protectionist sentiments, particularly with respect to China, we anticipate that the divergence in tax and regulatory strategies is likely to drive market reactions post-election. Acadian remains focused on maintaining diversified portfolio exposures that minimize directional risks linked to these policy areas.

Preparing for Unclear and Contested Outcomes

As with past elections, predicting the outcome remains challenging, and the narrow odds between candidates make the potential for an unclear or contested result a key concern. Acadian’s approach to such events is rooted in risk mitigation. We strive to limit portfolio exposure to uncompensated risks, such as the possibility of post-election volatility. Our past experience helps us aim for attractive, long-term returns. Acadian’s philosophy is to take risks where we believe we have skill and mitigate exogenous sources of risk where possible. In the 2024 election, we’re carefully calibrating intervention to identify and minimize sources of uncompensated portfolio risk.

Finally, the U.S. presidential election is here. Unlike Parliamentary elections in Britain, U.S. elections seemingly last for years. During this drawn-out process, candidates traverse the country, making promises and shouting why the other candidate’s election will result in the death of the nation. With history as a guide, very few of those promises ever become law, and the nation continues on.

Trust the Checks and Balances

We believe there are two factors that need to be considered when analyzing elections. First, the Founding Fathers gave us a system (albeit imperfect) that is designed to get little accomplished. We have three equal branches of government often working at cross purposes. As a result, most of the more extreme policy positions fail to become law. George Washington famously said at a breakfast with Thomas Jefferson, “We pour our legislation into the Senatorial saucer to cool it.” In other words, the more extreme positions coming out of the House of Representatives rarely pass Senatorial muster.

Markets Adapt

Second, quality businesses adapt. Political winds have blown from all points on the compass since our founding. We believe good businesses can adapt and prosper regardless of the prevailing winds.

At Aristotle Capital, we don’t spend our intellectual capital trying to predict the unpredictable. Instead, we spend the bulk of our energy understanding the long-term secular trends that all businesses are subject to—some positive and some negative. We believe focusing our attention on analyzable factors while others chase the prevailing political winds may help us gain a distinct competitive advantage.

As the 2024 U.S. presidential election approaches, BlueCove’s investment strategy remains focused on maximizing returns through proprietary insights while reducing exposure to events where uncertainty is elevated. Our focus is primarily on non-market directional movements where we continue to rely on our scientific proprietary research to uncover relative value opportunities across issuers and sectors, even during periods of heightened uncertainty brought on by elections.

Key Policy Considerations: Isolationism vs. Globalism

The most critical policy area for capital markets in the 2024 election is the degree of U.S. isolationism. Reduced global military engagement could embolden rogue states, raising risk premiums for global assets. On the trade front, tariffs could lead to retaliatory measures from other countries and put upward pressure on inflation. This distinction between isolationism and globalism is a defining characteristic that we believe will have a lasting impact on global capital markets, influencing everything from geopolitical risk to inflationary pressures.

Lessons from Past Elections

Our experience with past elections reminds us that forecasting outcomes is inherently difficult, especially when the race is close. The 2000, 2016, and 2020 elections taught us that surprises are not uncommon, and the volatility leading up to such events can be significant. Historical models attempting to predict U.S. election results have had mixed success, largely due to their reliance on qualitative factors that can shift unexpectedly in a short time. As the saying goes, "A week is a long time in politics," which remains true today. At BlueCove, we approach elections with caution, limiting exposure to risks we cannot accurately quantify while potentially seizing opportunities where our process gives us an edge.

Long-Term Focus with Opportunistic Strategy

At Byron Place Capital Management (BPCM), our investment strategy remains rooted in long-term fundamentals, focusing on businesses with sustainable competitive advantages and strong, well-incentivized management teams. The outcome of the 2024 U.S. presidential election, while closely watched by markets, does not significantly influence our investment process. Instead, we view any potential election-related volatility as an opportunity to acquire stakes in high-quality companies at more attractive valuations. The strength of the U.S. political system’s checks and balances reinforces our confidence in the country as a favorable environment for deploying capital, regardless of the election result.

Both Candidates Bring Inflation Risk and Deficit Spending

Despite all the back and forth in debates, we do not foresee a meaningful difference in the candidates’ economic agendas, as both are likely to employ inflationary policies and prioritize deficit spending. While Trump’s focus on tariffs and potential influence over the Federal Reserve may lean toward slightly higher inflation, the difference is not significant enough to affect our long-term outlook. Instead, we continue to see the U.S. as a global leader, leveraging its status as the world’s primary reserve currency. In this environment, BPCM remains committed to identifying and investing in what we believe are attractively valued small-cap businesses that seek to deliver long-term returns, regardless of political outcomes.

At Granahan Investment Management, we are not making any significant portfolio adjustments ahead of the 2024 U.S. presidential election. According to David Rose, Portfolio Manager, we don’t have enough confidence in predicting the election outcome or its immediate policy implications to justify a change in strategy. While the markets may experience short-term volatility in response to the election results, the likelihood of narrow margins across all branches of government leads us to believe that the risk/reward dynamics are not compelling enough to warrant pre-election positioning.

Trump Trade Policy

The most significant policy area that could be impacted by the election outcome is U.S. trade policy. A victory by Donald Trump would almost certainly lead to more aggressive and unilateral changes in trade policy, which could occur without Congress's input. Such shifts could affect a wide range of industries, particularly those with global supply chains. However, due to the uncertainty surrounding both the election and policy changes, we will continue to monitor the situation without making drastic adjustments.

Lessons from Past Elections

From past elections, we’ve learned that government gridlock is often the norm, and only when one party controls the presidency, Senate, and Congress do we typically see landmark legislation with broad market impacts. Additionally, polling data has become less reliable, with outcomes often influenced by voter turnout in key districts and third-party candidates—factors that polls may not fully capture. This uncertainty underscores our cautious approach, as we prefer to avoid positioning ahead of events that introduce more variables into the market.

At IR+M, we do not make significant portfolio adjustments ahead of elections. Our investment strategy remains focused on cautious positioning due to the asymmetric risks we currently see in the market. Geopolitical tensions and a growing fiscal deficit are among the primary drivers of our conservative approach. Furthermore, spreads across sectors are not overly attractive, which reinforces our risk posture. Our philosophy centers on bottom-up security selection rather than relying on macroeconomic or interest rate predictions. By emphasizing durable companies with stable cash flows, we aim to deliver consistent, risk-adjusted returns across market cycles—regardless of political outcomes.

Trade and Tariffs

One of the key policy areas that may be impacted by the 2024 election is trade, specifically regarding tariffs. Both candidates have indicated a willingness to impose additional tariffs, which could lead to higher costs for consumers and strained international trade relationships. While these developments are worth monitoring, they do not play a primary role in our investment process. Instead, we continue to evaluate each security based on its credit quality, structure, and price. We will adjust our investment thesis accordingly if any of these factors change due to election results.

Volatility is Opportunity

Looking back at previous elections, we’ve observed that markets tend to favor moderation and predictability. When political outcomes are uncertain or lead to significant shifts, such as a full party sweep, volatility often increases. However, we view this volatility as an opportunity. By maintaining ample liquidity, we can seek to capitalize on any dislocations that arise during periods of market uncertainty. Our approach helps to ensure we remain well-positioned to make thoughtful, long-term investments, regardless of short-term election-driven market movements.

At Marathon Asset Management Limited, we do not position our portfolios based on the potential outcomes of elections, including the upcoming 2024 U.S. presidential election. Our investment philosophy centers on building portfolios that endure through economic and political upheavals over the market cycle. We focus on company-specific factors, those that are endogenous to the businesses we invest in, rather than exposing our portfolios to drivers of returns that are largely outside the control of these companies. As bottom-up stock pickers, we recognize that we do not have an edge in predicting events like elections, which are influenced by the thoughts and emotions of a vast population. Therefore, our portfolios remain neutral to the electoral outcome.

Focus on Global Trade and Geopolitics

Given that Marathon’s portfolios and the companies we invest in are global, particularly with exposure to emerging markets, we are closely watching policies related to international trade and tariff structures. Additionally, given the current fractious geopolitical climate, the role of the U.S. in global defense and NATO policies remains of keen interest. Any material changes to America’s approach in these areas could have a wide-reaching impact on international markets and, by extension, the companies we invest in.

Business Strength and the Election Outcome

Our experience shows that over the long term, the sustainability of a company’s economic returns and reinvestment opportunities truly dictate shareholder outcomes, not short-term political changes. Even in extreme scenarios, which are more commonly seen in emerging markets, the strength of the business itself seeks to drive long-term value for investors. While the 2024 election remains wide open with many possible outcomes, it would be imprudent to make portfolio changes based on speculative predictions. Instead, we continue to prioritize building robust and diversified portfolios that have the potential to withstand a variety of political and economic conditions.

Elections do not influence our investment process at Marathon. We continue to evaluate individual companies based on their capital allocation strategies and the resilience of their cash flow profiles. Our long-term focus provides us with the opportunity to build portfolios that seek to remain insulated from the short-term noise of political cycles, including the 2024 U.S. election. Our approach remains centered on selecting stocks that we believe can sustain growth and value creation over time.

Neuberger Berman's strategy is primarily driven by systematic models, with no subjective positioning changes planned ahead of the U.S. elections. While the models are at the heart of the investment process, the portfolio managers apply their expertise to developing and overseeing these models. If necessary, risk budgeting adjustments are made to account for evolving market conditions.

Our strategy is somewhat flexible, like determining whether an intra-month rebalancing is warranted due to significant market shifts. While rare, we monitor our portfolios constantly and consider intra-month rebalancing when deviations from the optimal portfolio exceed predetermined thresholds. This rare intervention reflects the team’s focus on long-term risk expectations rather than reacting to short-term market shocks.

The Election may Impact Tax and Trade Policy

The election's outcome has the potential to significantly impact tax and trade policy, both of which are crucial areas for Neuberger Berman's Multi-Asset team. Tax policy, in particular, holds weight due to its influence on both personal and corporate finances. A key issue is whether the 2017 Tax Cuts and Jobs Act personal tax cuts will be extended or modified, and corporate tax rates will likely see stark differences in approach between the two candidates. For instance, Donald Trump is expected to favor lower corporate tax rates, while Kamala Harris may push for higher rates.

Trade policy is another area of interest, especially with China. A Trump administration would likely prioritize changes in trade relations, which could significantly impact commodity markets, influencing prices and volumes.

Predicting is Impossible

Historical lessons from elections show that markets experience heightened uncertainty and volatility in the near term. However, even if one knew the outcome in advance, predicting short-term market reactions can be highly counterintuitive. In fact, we have not observed the expected equity price weakness leading up to this election, though volatility remains high. This reinforces the trend of elevated market volatility surrounding election day, which we expect to continue, given the tight competition in 2024.

PanAgora Asset Management

Monitor Key Developments, Don’t React Prematurely

At PanAgora Asset Management, we are closely monitoring the developments surrounding the 2024 U.S. presidential election. While it’s still early to make definitive decisions about positioning, we are especially attentive to the possibility of a red or blue sweep in Congress and the White House. A red sweep could increase the likelihood of changes to corporate taxes and trade policies, while a blue sweep might prompt a focus on climate change initiatives. These outcomes could have meaningful implications for the risk factors we monitor, but we remain cautious until the political landscape becomes more apparent.

Focus on Taxes, Trade, and Environmental Regulations

For active equity investors like us, the most important election-related policy areas are those that directly impact individual companies. Legislation on taxes, trade, or environmental regulations can create uneven effects across businesses, and this variability is what we pay close attention to. Our quantitative models are designed to capture risks and opportunities that differ significantly by company and sector, helping to ensure that we stay ahead of any shifts brought on by election outcomes.

Managing Exogenous Risk Factors (Like Taxes and Tariffs)

Presidential elections often introduce unpredictable exogenous risks that can influence markets in ways that are not easily captured by traditional models. While endogenous risks like inflation or recessions are well-accounted for in our quantitative models, exogenous shocks—such as changes in tax policies or the imposition of tariffs—require more nuanced monitoring. Our portfolio management team plays a critical role in assessing these external risks and implementing safeguards to help ensure resilience. For instance, during the 2016 election, we developed proprietary risk factors such as tax rate sensitivity and export exposure to China. This allowed us to adjust our portfolio in response to policy changes like the Trump administration’s corporate tax cuts and trade tariffs.

Improved Tech Since Previous Elections

One key lesson from past election cycles is the importance of advanced tools in navigating policy uncertainty. Compared to the 2016 election, we now have more sophisticated techniques at our disposal, such as machine learning and natural language processing, to assess the potential impact of policy changes with greater precision. These tools enable us to better identify risks and opportunities as they emerge, enhancing our ability to navigate the complexities of the 2024 election and beyond. Our focus remains on leveraging these advanced capabilities to protect and grow our clients' investments, regardless of the political outcome.

At Punch Investments, we do not plan to reposition our portfolio based on the upcoming U.S. presidential election. While elections can introduce volatility into the stock market and impact specific holdings, our strategy focuses on remaining flexible and monitoring for opportunities that may arise from this volatility. We stay in close communication with the management teams of our portfolio companies to understand whether their focus or strategy might shift based on different electoral outcomes, but we believe maintaining a steady, long-term approach is essential.

Keeping an Eye on Economic and Housing Policy

As with most elections, the potential impact on the broader economy and housing sector remains of interest. While we do not have a specific view on the election’s policy focus, these areas are likely to be important considerations given their role in influencing market and consumer confidence. Regardless of which policy areas come into focus after the election, our portfolio will remain geared toward long-term value creation.

Volatility Creates Opportunity

Elections do not directly influence our investment process at Punch Investments. With decades of experience and a wealth of historical data on market responses to election outcomes, we find that markets typically react more to the clarity of the result than to the actual outcome itself. This historical perspective has shown us that increased volatility has the potential to create opportunities rather than threats, especially for those willing to take a contrarian stance when fear distorts market reality.

Lessons Learned from Past Elections

One of the key lessons from past election cycles is the potential for extreme policies to fuel market overreactions. For example, healthcare stocks were widely sold off in the early 1990s following proposed changes by the Clinton administration. However, political systems are often driven by compromise, and the final policies enacted tend to be less extreme than initially proposed. We find it is best to avoid knee-jerk reactions to big-picture political news and instead allow the dust to settle, presenting more informed opportunities for long-term investment success. Markets have often rebounded strongly in the years following an election, reaffirming our strategy of patience and prudent decision-making.

Harbor’s Perspective

Election season can be volatile and consuming but take heart in the common theme offered by our partners: with volatility, we see opportunity.

For active boutique managers with a disciplined, long-term approach, elections aren’t worth losing sleep over. We know it can be hard to tune out the headlines but remember that the market’s tendency to dwell on and over-extrapolate the effects of elections is precisely what can potentially create long-term opportunities for disciplined and patient investors who are primarily focused on individual company fundamentals. Several partners echoed a general uncertainty surrounding geopolitical events and possible changes in U.S. tariffs. These issues are worth keeping an eye on, but the desire to act on this consensus, which remains highly outcome-dependent, has been less prevalent.

At Harbor, we recognize that it’s impossible for our clients to insulate themselves from daily news events related to economies, politics, or financial markets. However, we believe that it is important to resist using elections as a basis for investment decisions. We believe adhering to a long-term strategic approach to investing—focused on active management and regular rebalancing—remains a prudent course of action.

Important Information

The opinions expressed are as of October 2024 and are subject to change. The opinions expressed by the subadvisors do not necessarily represent the views of Harbor Capital Advisors, Inc.

This information has been provided by various subadvisors who work with Harbor Capital for informational purposes only. It does not constitute or form part of any offer to issue or sell, or any solicitation of any offer to subscribe or to purchase shares, units, or other interests in investments that may be referred to herein and must not be construed as investment or financial product advice.

Harbor nor any of the subadvisors Harbor works with have not considered any reader’s financial situation, objective, or needs in providing the relevant information.

Investing entails risks and there can be no assurance that any investment will achieve profits or avoid incurring losses.

Stock markets are volatile, and equity values can decline significantly in response to adverse issuer, political, regulatory, market, and economic conditions.

Past performance is not necessarily a guide to future performance or returns.

Harbor and the subadvisors they work with have taken all reasonable care to ensure that the information contained in this material is accurate at the time of its distribution; no representation or warranty, express or implied, is made as to the accuracy, reliability, or completeness of such information.

This material may contain forward-looking information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any of these views will come to pass.

Harbor Capital Advisors is not affiliated with any of the subadvisors referenced in this article.

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