Election season breeds instability in the markets, but to stay ahead of the curve, savvy investors should look into infrastructure stocks. The decay of American manufacturing can lead the way towards a reinvigoration of American infrastructure.
“I don’t understand why we haven’t been investing in infrastructure for the last decade,” said a partner at a large Greenwich hedge fund. “Real infrastructure, bridges, tunnels, roads—its real work and can employ a lot of people.”
Both Hillary Clinton and Donald Trump have vowed to put money back into America’s crumbling infrastructure, making it a safe bet for investors worried about election fueled market volatility. Not only are the physical attributes like pipelines, storage facilities and ports essential to the economy but the contracts are often long-term and fee-based, leading to predictable returns for investors.
The American Society of Civil Engineers released a report in 2013 that gave the country’s infrastructure a D+, stating that an investment of $3.6 trillion is needed by 2020 to meet the standards set by the society.
Oppenheimer Funds, Janus Capital Group and Merrill Lynch, among others, have released reports of how presidential elections might affect the market. These reports urge investors to remain calm this election season and think outside party lines.
Donald Trump, a figure who many economists have called the epitome of uncertainty, has not swayed markets to the level that some may have expected. The S&P 500 risen 0.8 percent from 2077.99 to 2168.27 since Trump announced his candidacy in June. Meaning, the market has chosen Clinton as the presidential victor in November.
Trump’s brash attitude, his off the cuff, unscripted antics that reek of reality show production send investors into nervous fits. Hillary Clinton, who has been in the political sphere for three decades, offers a more predictable outcome. There is a public record of her actions; therefore the market has tapped her as the likely winner.
The Upshot reported last month that at the beginning of the first presidential debate, the markets gave Trump a 35 percent chance of winning. However, post-debate his odds had dipped below 30 percent. The S&P 500 shot up 1.4 percentage points from the first debate to close on the next day, indicating that there was positive market response to an increase in Clinton’s chances.
The market responds faster than the gamut of presidential polls. The debate reflected a relatively small margin of increase for the likelihood of a Hillary Clinton presidency but the market reaction was swift and notable. Imagine then the capacity for markets to move if for example, Trump upset the status quo and won?
“I think that if the stock market went down on a Trump victory, you’d want to buy every bid,” the same Greenwich hedge fund partner said.
Cemex (NYSE: CX), a Mexican multinational building materials company, is one of the largest concrete and cement makers in the world. Their second quarter profits this year were up to $205 million, $91 million higher than a year ago. Around 25 percent of the company’s revenue is generated in the United States.
Small, incremental tariffs on big companies like Cemex, the hedge fund partner said, could be bullish for American cement producers.
Brookfield Infrastructure Partners (NYSE:BIP), a Canadian asset management company with large positions in North and South America, Europe and Australia, has outperformed the S&P 500 through the second quarter of 2016. Right now, the company’s stock is trading at $34.16, up from $25.54 a year ago and they’re growing. Recently, they agreed to acquire a 90 percent stake in Brazilian natural gas company, Petrobras for $5.2 billion. One Seeking Alpha analyst claims that Brookfield is currently 54 percent undervalued, despite their revenue surge in the second quarter.
Marisa Grant manages a $1.4 billion pension fund for Montgomery County Public School in Maryland, where she is the Chief Investment Officer. Her aim is to be cautious and work with the investment managers assigned to the portfolio she is responsible for. She’s picked up on both candidates focus on infrastructure. The biggest part of her portfolio is the MSCI ACWI Index, much of which is tied up in infrastructure such as railroads, heavy electrical equipment and utilities.
For one career investor in Connecticut, now retired, keeping his investments in tact during this volatile time is more important than ever.
“Somewhere in the next two weeks, I’m going to dump a third of my portfolio, just in case Hillary coughs in a debate. You just never know.”