Markets worldwide experienced significant losses as President Elect Donald J. Trump cruised to victory in the wee hours of Wednesday morning; a reaction that, for many, lent considerable credibility to Trump’s rhetoric regarding Hillary Clinton’s close ties to Wall Street. Was the market-tumble the result of Wall Street’s concern that there would be no Hillary Clinton to shepherd their interests through the halls of Congress, the Department of Justice and the SEC? Probably not!
No, the markets reacted as they always do to change and uncertainty, both of which are certain to be hallmarks of Trump’s transition to power. The same phenomenon was discernible post-Brexit, after which the markets recouped their losses and returned to normal—for lack of a better word.
Hedge funds should have been postured to take advantage of a Donald Trump victory. Arguably, hedge fund managers who believed in a Trump win would have bets in place to profit from the inevitable tumble in the stock markets. Those without such prescience should not lose heart. Additional opportunities will present as the Trump administration moves to implement the talking points outlined in his campaign.
Opportunities are likely to manifest in the mining sector, not just with respect to coal, but overall, as regulatory burdens are eased. Trump’s election will also reshape the energy sector, the healthcare sector and the insurance sector. In short, no hedge fund manager should rest until a complete analysis of the Trump agenda is completed and the findings are factored into their firm’s investment strategy.
Investors should be buoyed by Trump’s promise to cut corporate taxes, which has the potential to draw jobs, talent and investment back to the U.S.
Hedge Fund Campaign Contributions
Hedge funds invested heavily in the 2016 election cycle, with Robert Mercer (Renaissance Technologies), George Soros (Soros Fund Management) and Paul Singer (Elliott Management), rounding out the top three, collectively contributing in excess of $33 million. From a partisan standpoint, the overall hedge fund industry was divided along party lines, with 42 percent supporting Democrats (primarily Secretary Clinton) and 58 percent supporting Republicans (almost exclusively down-ballot candidates).
As we now know, Secretary Clinton lost her bid for the country’s highest office, putting 42 percent of hedge fund donors in the loss column. The remaining 58 percent, Republican hedge fund donors, fared significantly better, as their down-ballot candidates were able to retain control of both houses of Congress.
If the foregoing tells us anything, it is that hedge funds select winning candidates at a much higher rate than they pick winning investment opportunities.
Now the arduous ordeal that is the presidential election cycle is behind us and hedge funds can get back to the important work of earning returns for investors. This will include taking full advantage of the aforementioned opportunities a Trump victory represents. So, rebalance, reset and enjoy the ride.
Regardless of one’s political leanings, it must be acknowledged that Donald Trump’s surprise upset of Secretary Clinton is unique in the history of our nation and represents a sea of change in how the political class will view the American electorate in future elections.