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US election insights: Global dividend strategy
12 Nov 2024
Dan Roberts, Portfolio Manager, Fidelity International
As the market absorbs the US election result our team will be watching closely how policy changes of the new administration are likely to impact both US and non-US companies over the coming months.
However, our approach remains consistent: building, from the bottom up, a strategy of high quality, cash generative, resilient businesses with enduring competitive advantages whose outlook is driven predominantly from within. Our investment cases are not reliant on a particular political or macro scenario playing out. Rather our focus is on businesses we are happy to own across the cycle, through different political regimes.
A look back at long term history shows that there has not been a clear relationship between the make-up of the US government and subsequent returns of the US stock market. Over the four-year period following an election, the market has typically risen by a similar amount whether a Republican or Democratic president has been in charge as well as if either party has won a sweep or operated as part of a divided government.
US domestic cyclicals and perceived deregulation beneficiaries such as banks rose in the immediate period following the result, with defensives and non-US stocks out of favour. However, the market will continue to assimilate the result over the coming days as well as reacting to more concrete policy announcements over the medium term.
Given our long-term investment horizon and low turnover it is unlikely the US election will drive material changes in positioning. However, high profile news events such as these and any accompanying volatility or short-term knee-jerk reactions by the market can potentially provide an opportunity to go against the crowd and take advantage of valuation anomalies. We will remain on the look out for any such opportunities.
From a policy perspective, during campaigning both parties had shown a commitment to spending but with a lack of detail on the specifics of economic policy. Equity investors will be paying particular attention to the new administration’s approach to tax and tariffs.
The US trades at a significant premium to the rest of the world and the valuation gap is as extreme as it’s been in many decades. While the weighting to technology stocks explains some of the valuation differential, a closer look shows the premium to be broad based, with nine of the ten sectors in the US more expensive than their ex- US counterparts. Given our valuation discipline, we therefore can often find better opportunities in companies domiciled outside the US. But despite being domiciled outside of the US, many of the European and Asian companies we prefer generate significant proportions of their revenues in the US. In addition, many of the largest US technology companies pay little or no dividend, making them unsuitable for the strategy.
