Much ado about nothing

Fran Radano explains why being a long-term investor enables him to see past the US election.

Fran Radano, Senior Investment Manager, North American Income Trust

View the North American Income company profile page

The upcoming election has provided more than its fair share of sound bites, conspiracy theories and at times a complete void of “presidential” presence amongst the candidates. Mudslinging and misquoting aside, the ultimate winner will hardly have a mandate to push their platform through unilaterally, and as long-term investors there’s a better chance that this is simply ‘much ado about nothing.’

While clearly there are theoretical sector implications for each candidate, we find catalyst investing based on probability analysis of politics to be a game any investor should avoid. Trump will not build a wall along the Rio Grande and Hillary will not be able to convince Merck and Pfizer to sell medicines at a loss. Instead, we expect some bipartisan fiscal policy that will address the US’ underinvested infrastructure, but unlikely anything that would realign a portfolio.

Further bipartisan agreements, however, may be hard to negotiate in an increasingly bifurcated Congress. That said, we do admit to daydreaming at times about the implementation of a US corporate tax policy with a competitive rate that would allow corporates to reinvest in America as well as allowing income earned abroad to be reinvested in any geography if not simply returned to shareholders without additional taxation. That may be a dream deferred, but the US government’s series of checks and balances does reduce volatility in the policy making process.

Stepping back, the US economic engine remains resilient and has spewed out job growth this entire decade despite being a key cog in a weakened global economy. Specifically, the US has added roughly 200,000 jobs a month since 2010 – that’s over 15 million jobs, hardly an insignificant number – and has sported an unemployment rate 5% or less for nearly a year with jobless claims now reaching the lowest levels since 1973.

Furthermore, while perhaps not quite Goldilocks, inflation remains largely muted despite some arguably overdue wage growth across many industries which will likely be recirculated in the economy. The all-important housing market has also seen measured expansion as the combination of low interest rates, strong employment and an increasing level of household formation growth has provided a stable underpinning in this tangible segment of the economy.

The North American Income Trust remains a well-established vehicle to invest in a portfolio of cash generative companies that aim to provide both growth and income. The Aberdeen Asset Management investment process seeks to minimize downside risks and it’s important for us to be good stewards of client capital. It is a team based, research intensive process where investment professionals challenge each other every day with the aim of creating an optimal portfolio that can endure tough times and is well suited for the long-term.

The Trust has a competitive yield and a modest opportunistic options overlay helps add to the income generation. A primary goal of the Trust is to maintain a progressive dividend policy which is underpinned by consistent dividend growth of the underlying companies which continue to remain robust. The end result is a thoughtful balance of industry leading enduring global franchises married with a diversified group of cash generative growth companies.