In this article, we address the following questions:
- How does US election outcome impact the Disruptive Tech fund?
- How is the portfolio positioned or repositioned in light of this?
- What is the outlook for the fund?
The US election outcome has significant implications for investors in the technology sector (and beyond). The initial reaction has been a market rally in the US, on the prospects of lower taxes and less regulation, and as investors try to pick initial winners and losers. For example, since 5 November, we have seen a significant rally in bitcoin-levered stocks, while semiconductor companies have generally underperformed.
However, a more sober assessment is needed to navigate the mid and long-term impacts.
- First, many of the stated policy goals of the incoming administration are inflationary, including tariffs, mass deportation of immigrants, and reducing the independence of the US Federal Reserve. The global macroeconomic impact will be material. If growth becomes scarce again, I believe secular growth within the technology sector could be a source of outperformance. Higher interest rates will also negatively impact longer duration assets (stocks with cash flows further in the future).
- Second, there is a lot of policy uncertainty, even though the election was a sweep for the Republican party. While the president has significant powers to negotiate treaties and implement tariffs, a lot of other measures will require legislation, and there is disagreement between the conservative and Make America Great Again wings of the party. Trump’s unconventional cabinet picks also raise uncertainties; while all have pledged loyalty to the president-elect, they have individually expressed different policy goals and opinions. A lot will depend on who stays closest to Trump.
- While there may be fewer overall regulations, we are bracing for the potential of retaliatory attacks on specific companies. Some of the antitrust cases against large technology companies may lose momentum, but those for which the right-wing politicians perceive a liberal bias are likely to continue to be targeted.
- Finally, we expect considerable geopolitical disruption including supply chain dislocations (due to tariffs) and heightened risks associated with a more isolationist and transactional approach to foreign policy.
For the Disruptive Technology fund, we have remained focused on the consistent implementation of our investment philosophy and process.
Ahead of the election, we carefully managed exposure to a small number of stocks that could have a negative initial reaction to a Trump victory. One example is First Solar, a key beneficiary of the Inflation Reduction Act (IRA). Since the election was called, we have been sharpening our pencils and applying bottom-up fundamental research to assess potential impacts on a stock-by-stock basis. Using the First Solar example, we believe support is building for maintaining elements of the IRA that encourage domestic manufacturing jobs.
Looking ahead, we continue to believe in the powerful secular themes behind digital transformation, especially in relation to artificial intelligence. We believe the political environment creates noise and uncertainty, but does not derail the momentum of our core themes.
Written 17 November 2024
