Victor Zhang

With little more than a month to go until the U.S. election, head-of-state elections in other countries this year have shown that even significant or surprise election results don’t lead to long-term market upheaval.

Victor Zhang, chief investment officer of American Century, looks at election results and market impacts in India, the U.K. and France, noting that whether the election results were a landslide or slim victory, a surprise or as expected, the market impact has been temporary.

“While these results have tremendous implications in each country, they haven’t triggered sustained moves in global markets. U.K. investors had already priced in Labor’s victory, whereas the tighter races in India and France produced somewhat surprising outcomes and spurred temporary bouts of volatility. Temporary is the keyword. Market volatility is typical during election season, but the market has historically returned to more typical patterns during the year after votes have been counted,^[1]” said Zhang.

According to American Century data analysis of the presidential elections from 1932 to 2021, it isn’t merely that election-related volatility will end soon after an election. In fact, sitting out of the market before and after an election has historically resulted in underperformance, with investors better off staying invested throughout the election season.

“We studied the results of staying fully invested in stocks versus going to cash for six months before and after a presidential election. Despite elevated volatility during this span, being fully invested outperformed by a wide margin. Similarly, choosing to be in cash before or after the election underperformed the fully invested approach,^[2]” said Zhang.

Fundamentals of asset allocation Trump efforts to profit from election-related volatility

At the same time, American Century’s chief investment officers assert it is difficult for an investor to leverage election-related market volatility to ride the highs and avoid the lows.

“Data shows that trying to get in and out of the market based on the election calendar doesn’t work as well as riding out the uncertainty,” said Zhang. “With all this in mind, the sound investment strategy for election years goes back to the fundamentals of asset allocation. That means accounting for the time horizon, the purpose of the funds you’re managing and your tolerance for risk.”

Agreeing that investing based on political prognosticating is ill-advised, Keith Lee, global growth equity co-chief investment officer, elaborated on the connection between identifying solid businesses and their likelihood to successfully navigate various political outcomes.

“As we near the end of the electoral season, clients ask what we’re doing about the elections and how we’re positioning for this or that political outcome. But that’s not how we manage money, and we don’t believe you should either,” said Lee. “Rather than focus on political headlines, we put our energy into identifying good businesses. We believe companies with solid long-term growth prospects are more likely to generate wealth for our shareholders over time. These firms are also better situated to ride out electoral or economic uncertainty.”

Similarly, Patricia Ribeiro, global equity co-chief investment officer of American Century, advises investors not to lose sight of more significant indicators and drivers of market movements, even if they don’t compete with the overwhelming attention on the election’s impact to markets.

“The U.S. presidential campaign will dominate the news cycle and could be a source of volatility throughout the fourth quarter. In the long term, however, demand for goods and services has a much more significant impact on investment results,” said Ribeiro.

Don’t sleep on real policy-related market impacts

American Century does not use anticipated election outcomes in its investment process because it doesn’t believe it leads to better performance, but that doesn’t mean policies don’t impact the market. For example, Ribeiro points out that tariff and trade policy is unique because of the ease a U.S. president has in unilaterally effecting change.

“Candidates’ views on trade and tariffs are worthy of attention because the president doesn’t need a cooperative Congress to enact policy. So, whoever moves into the Oval Office on January 20, 2025, will have the authority to act unilaterally on an issue with significant economic implications.”

Lee looks at productivity as a solution to our aging society and shows how productivity offers benefits to both workers and businesses, but that relationship is influenced by policy. “Policymakers have a role in how the costs and benefits of productivity gains are distributed throughout the economy. For example, before the 1980s, productivity and wage gains went hand in hand. But policy changes since then have weakened the relationship. The point is that policy choices go a long way toward determining who benefits from rising productivity and to what extent.”

Another area where American Century is tracking a policy that could impact markets is in mergers and acquisitions. Kevin Toney, global value equity chief investment officer of American Century, noting that while the evidence is mixed and unclear, “The outcome of the November election may affect the climate for corporate mergers in 2025 and beyond, although we don’t necessarily think investors should base their investment decisions solely on this issue.”

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Notes:
[1] FactSet, U.S. National Archives, Library of Congress, American Century Investments.
[2] Based on data from 4/30/1932 – 12/31/2021. Source: FactSet, Ibbotson and Associates, Inc., U.S. National Archives, American Century Investments. Four hypothetical investor scenarios were analyzed for each presidential election since 1932. Each hypothetical investor invests $10,000 six months before the presidential election and remains invested in stocks or cash for the six months before and after the election.

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Victor Zhang

American Century Investments, a $200 billion^[1] global asset manager, expands its investment lineup with the launch of a new strategy for its clients around the world: American Century Global Sustainable Value Equity strategy.

“We are excited to introduce a new global value capability that offers clients a differentiated value proposition by investing in companies we believe are well positioned to benefit financially from a transition to more sustainable business practices,” said chief investment officer Victor Zhang.

The Global Sustainable Value strategy will apply a best-in-progress approach as it seeks to deliver attractive financial returns while contributing to positive sustainability outcomes across every sector of the economy. The strategy will maintain 45-75 securities and will be managed by global value equity chief investment officer Kevin Toney,  senior portfolio manager Michael Liss and portfolio manager David Byrns.

“The team will leverage our proprietary Improvement Pathway (IP) framework to identify companies that recognise the importance and value of transitioning their business operations to support a more sustainable economy,” said Byrns. “This is an opportunity for our clients to invest in a best-in-progress sustainable strategy that will strive for outperformance while delivering downside risk management and lower volatility.”

The investment team will work in partnership with American Century’s sustainable research team to identify companies for the new strategy.

“Instead of focusing on companies that are already known as sustainability leaders, we are seeking diamonds in the rough – companies that are committed to improving the sustainability of their business,” said head of sustainable investing Sarah Bratton Hughes.

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Notes:
[1] Assets under supervision as of 10/27/2023.

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