Martin Currie Global Portfolio and Securities Trust of Scotland are the global investment trusts with the largest allocations of US equities, data from the Association of Investment Companies shows, as managers argue that the looming presidential election is unlikely to hamper the market. 
With the UK’s referendum on its membership of the European Union behind us (although the negotiations surrounding the actual exit and future relationship will need to take place at some point) and many European elections being held in 2017, the closest major political event is the US presidential election on 8 November.
The race for the White House being run by Democrat candidate Hillary Clinton and Republican hopeful Donald Trump has been one of the most controversial and bitter-fought in living memory, with both seemingly unloved by large sections of the electorate and showing little love for each other.
A victory for either candidate would lead to some kind of market reaction, although views are split on where the benefits and pain would be felt. Despite this, a number of global investment trusts have a significant portion of their assets allocated to the country and are not looking to shift money to other parts of the market because of the election.
According to the Association of Investment Companies, the average trust in the AIC Global sector has a 36 per cent weighting to US equities while this figure stands at 22 per cent when it comes to the AIC Global Equity Income sector. However, as the table below shows, some have exposure approaching 60 per cent.
Source: Association of Investment Companies
Tom Walker, who as manager of the £212.4m Martin Currie Global Portfolio Trust has the largest weighting to the US, highlights the country’s economic strength and breadth of companies as the reason for this high allocation.
“The US economy has probably the best growth outlook of developed countries for the next few years but it is also quite a mature market and highly competitive,” he said.
“Many US companies are among the best quality in their sectors in the world – particularly in the technology sector. However, as stock pickers, for every company we assess, we look at its geographic earnings profile not at its country of quotation.”
Walker’s five biggest holdings are all US businesses with JP Morgan Chase, which accounts for 4.1 per cent of assets, the largest followed by Facebook, Visa, Lockheed Martin and Apple. Outside of the US, Martin Currie Global Portfolio Trust has 20 per cent in Europe, 8.4 per cent in Asia Pacific and 7.5 per cent in Japan.
Performance of trust vs sector and index over 10yrs
Source: FE Analytics
Regarding the presidential election, Walker is not expecting a result that will materially change his outlook on the country: “The US election is top of mind but currently I have taken the view that Hillary Clinton will win. She is the ‘status quo’ candidate, especially if the Republicans retain majorities in Congress.”
Mark Whitehead, who took over the £177.5m Securities Trust of Scotland in May this year and has the AIC Global Equity Income sector’s highest US allocation at 56 per cent, has similar reasoning to Walker for his positioning.
“US companies have been more proactive in the aftermath of the global financial crisis in restructuring their operations than companies in other regions, which has enabled them to invest more in growth,” he explained.
“In addition, the macroeconomic conditions in the US look to be improving more than elsewhere as the Federal Reserve appears to have been successful in its stimulus programme which was started earlier and in greater size than by other central banks.”
Securities Trust of Scotland’s largest US stocks are Chevron, United Parcel Services, Caterpillar, Merck and Philip Morris International. After the US, the largest geographic allocations are to Europe at 35.9 per cent, Asia Pacific ex Japan at 8.5 per cent and emerging markets at 3.5 per cent.
Investment trust managers are relatively at ease about the likelihood of the US election causing a disruption in the stock market, which has enjoyed a strong recovery in the years since the global financial crisis.
Performance of indices since 1 Jan 2008
Source: FE Analytics
Mid Wynd International Investment Trust co-manager Alex Illingworth, for example, says his US allocation is based around areas of structural long-term growth. The trust takes a “genuinely global” approach but the dynamism and the breadth of the American economy means many of the managers’ ideas happen to be quoted in New York.
“Macro and exogenous events such as the upcoming election we do not take a view on, preferring to focus on the companies that can grow their business regardless of factors outside of their control,” he added.
“All our companies need in order to prosper is order in Washington. What we would worry about are unpredictable policy changes emanating from DC. As such, a continuation of Obama policies, which Hillary Clinton appears to mostly offer, would be preferable.”
Regardless of the US election result, however, Witan Investment Trust manager Andrew Bell has some words of advice for the incoming president. He has just 25 per cent allocated to US equities.
“Cynicism has become an enduring feature of modern democracies but is rarely a good basis for government,” he said.
“It is important that the new president and Congress demonstrate an ability to find common ground in passing sensible laws, rather than perpetuating political gridlock. We believe it is vital that the US remains engaged with its friends as well as its competitors across the world.”