MAGA or TINA, the only way is up?
The problem with Trump’s use of the phrase “MAGA” – Make America Great Again – is that it implies America wasn’t already great. With its booming equity markets, robust economic growth, and strong fundamentals – such as energy independence, deep pools of domestic capital, and the inherent advantages of the US dollar’s reserve currency status – America has justifiably dominated the global economy and equity markets in recent years. For this reason, I believe MAGA isn’t the most fitting acronym for America today; instead, TINA – There Is No Alternative – better reflects the situation. Following on from my esteemed colleague’s previous article, I aim to justify my belief that despite the significant shake-up the Trump administration will bring, America should remain central to global investors’ strategies.
The S&P 500 continues to reach record highs, hovering near the 6,000 mark and up 25% year-to-date, with US companies now accounting for 65% of the entire global market capitalisation. While some might dismiss this rise as driven largely by the AI trade and concentrated in a few technology giants, the reality is more nuanced. Although the massive market caps of US tech firms mean their share prices heavily influence the market’s overall direction, nearly every company in the S&P 500 is up over the past 12 months. Interestingly, despite the attention surrounding US technology, it hasn’t been the best-performing sector over the last 12 months– that title goes to financials, with the S&P 500 financials index returning 43% versus the 39% of the S&P 500 information technology index.
Critics might argue this reflects peak exuberance and point out that this is already an expensive US equity market. The equity risk premium of the S&P 500 has dropped to nearly zero – the difference between the forward earnings yield of the index and the yield of a US government bond – reducing the incentive to hold equities over bonds. The last time this occurred was during the dot-com bubble.
However, concerns about an overinflated US market have been raised before, whether at the peak of the COVID-19 recovery or when Apple became the first trillion-dollar company in 2018. While there may be a speculative element in current valuations, with investors seeking quick returns from companies expected to thrive under Trump’s policies, the appeal of US equities also reflects their increasing attractiveness relative to global alternatives.
From a global perspective, the US has become the “safe bet” in this author’s mind. European growth, both in GDP and corporate earnings, remains stagnant. Excluding rebounds from the global financial crisis and COVID-19, US GDP growth has consistently outpaced Europe’s for the past two decades. With the potential for new tariffs on non-US goods, this gap is likely to widen. The Trump presidency may also deliver a double blow to emerging markets through punitive tariffs and a strengthening US dollar. Even the UK economy, beset by sluggish growth, persistent inflation, and the complexities of Labour’s recent budget, appears increasingly unappealing. The UK’s composite PMI has fallen below 50, signalling contraction. While some point to valuation gaps and strong fundamentals outside the US, there are few catalysts to suggest a reversal in the US market’s outperformance.
Against this backdrop, which trusts might you pick to benefit from these trends? Obvious choices include those in the North American sector, such as Baillie Gifford US Growth (USA) and JPMorgan America (JAM). USA has been a major beneficiary of the “Trump trade,” with exposure to Elon Musk’s ventures and high-growth companies likely to thrive under Trump’s laissez-faire approach. JAM offers a broader market exposure, with three managers specialising in growth, value, and small-cap strategies. Trump’s deregulation agenda could also spark a revival in select value stocks, with banking and energy deregulation (cornerstone sectors for income investors) acting as potential catalysts for trusts like North American Income Trust (NAIT) and BlackRock American Income (BRAI) to outperform their non-US high-yielding peers.
Polar Capital Global Financials (PCFT) stands out as a pure-play financial equity trust and arguably the best vehicle to capitalise on possible banking deregulation under Trump. Its sister trust, Polar Capital Global Technology (PCT), may also see another strong year. While new tariffs could challenge key technology assets, the sector’s dominance in the US market ensures ongoing support from passive investment flows, which surpassed active flows globally in 2023.
Natural inflows into US equities could buoy more diverse trusts as well, including Alliance Witan (ALW), Monks (MNKS), Mid Wynd International (MWY) and JPMorgan Global Growth and Income (JGGI), which have significant US exposure.
The key takeaway is clear: don’t second-guess the US market. Since Trump’s election, several of the trusts mentioned have seen their discounts narrow – USA’s discount, for example, has tightened by roughly 10% over the past two months and is now trading at a 2.3% discount. However, given the likelihood of continued US dominance, investors should hold their nerve and be wary of being underweight. As difficult as it may be for some to accept, there is no alternative to America.
The S&P 500 continues to reach record highs, hovering near the 6,000 mark and up 25% year-to-date, with US companies now accounting for 65% of the entire global market capitalisation. While some might dismiss this rise as driven largely by the AI trade and concentrated in a few technology giants, the reality is more nuanced. Although the massive market caps of US tech firms mean their share prices heavily influence the market’s overall direction, nearly every company in the S&P 500 is up over the past 12 months. Interestingly, despite the attention surrounding US technology, it hasn’t been the best-performing sector over the last 12 months– that title goes to financials, with the S&P 500 financials index returning 43% versus the 39% of the S&P 500 information technology index.
Critics might argue this reflects peak exuberance and point out that this is already an expensive US equity market. The equity risk premium of the S&P 500 has dropped to nearly zero – the difference between the forward earnings yield of the index and the yield of a US government bond – reducing the incentive to hold equities over bonds. The last time this occurred was during the dot-com bubble.
However, concerns about an overinflated US market have been raised before, whether at the peak of the COVID-19 recovery or when Apple became the first trillion-dollar company in 2018. While there may be a speculative element in current valuations, with investors seeking quick returns from companies expected to thrive under Trump’s policies, the appeal of US equities also reflects their increasing attractiveness relative to global alternatives.
From a global perspective, the US has become the “safe bet” in this author’s mind. European growth, both in GDP and corporate earnings, remains stagnant. Excluding rebounds from the global financial crisis and COVID-19, US GDP growth has consistently outpaced Europe’s for the past two decades. With the potential for new tariffs on non-US goods, this gap is likely to widen. The Trump presidency may also deliver a double blow to emerging markets through punitive tariffs and a strengthening US dollar. Even the UK economy, beset by sluggish growth, persistent inflation, and the complexities of Labour’s recent budget, appears increasingly unappealing. The UK’s composite PMI has fallen below 50, signalling contraction. While some point to valuation gaps and strong fundamentals outside the US, there are few catalysts to suggest a reversal in the US market’s outperformance.
Against this backdrop, which trusts might you pick to benefit from these trends? Obvious choices include those in the North American sector, such as Baillie Gifford US Growth (USA) and JPMorgan America (JAM). USA has been a major beneficiary of the “Trump trade,” with exposure to Elon Musk’s ventures and high-growth companies likely to thrive under Trump’s laissez-faire approach. JAM offers a broader market exposure, with three managers specialising in growth, value, and small-cap strategies. Trump’s deregulation agenda could also spark a revival in select value stocks, with banking and energy deregulation (cornerstone sectors for income investors) acting as potential catalysts for trusts like North American Income Trust (NAIT) and BlackRock American Income (BRAI) to outperform their non-US high-yielding peers.
Polar Capital Global Financials (PCFT) stands out as a pure-play financial equity trust and arguably the best vehicle to capitalise on possible banking deregulation under Trump. Its sister trust, Polar Capital Global Technology (PCT), may also see another strong year. While new tariffs could challenge key technology assets, the sector’s dominance in the US market ensures ongoing support from passive investment flows, which surpassed active flows globally in 2023.
Natural inflows into US equities could buoy more diverse trusts as well, including Alliance Witan (ALW), Monks (MNKS), Mid Wynd International (MWY) and JPMorgan Global Growth and Income (JGGI), which have significant US exposure.
The key takeaway is clear: don’t second-guess the US market. Since Trump’s election, several of the trusts mentioned have seen their discounts narrow – USA’s discount, for example, has tightened by roughly 10% over the past two months and is now trading at a 2.3% discount. However, given the likelihood of continued US dominance, investors should hold their nerve and be wary of being underweight. As difficult as it may be for some to accept, there is no alternative to America.
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