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September 12, 2012 at 08:23 AM
Mitt Romney sewed up his presidential nomination at the Republican National Convention, and Barack Obama has made his argument for re-election at the Democratic National Convention. It won’t be long before the presidential election is upon us on Nov. 6.
Will your portfolio be ready? Before a presidential winner is announced, business decisions and the markets are sure to bounce around in the lead-up to the election as political rhetoric ignites passions and causes mood swings in sentiment. For example, market watchers are anxiously waiting to see whether the Federal Open Market Committee announces a third round of quantitative easing, or QE3, on Thursday.
In short, now is the time for investors to batten down the hatches and prepare for changes both in Congress and the economy. (Expected legislative changes of concern for investors are the proposals to change tax advantages on municipal bonds and to raise taxes on dividend income.)
“I’d rather watch this storm from a safe harbor,” says Leon LaBrecque, managing partner of LJPR, a fee-only registered investment advisor and wealth management firm based in Troy, Mich., in a written comment.
Pointing to problems in Europe as well as Iran, LaBrecque warns that the greatest risk to investors looms right here in the United States, namely, the fiscal cliff. Shortly after the U.S. elects a president, he notes, the Bush tax cuts are scheduled to expire along with the payroll tax holiday on Social Security.
LaBrecque’s advice for investors is simple: seek shelter in lower-risk assets until the storms settle. “We’ve cut our equity positions 50%, and will wait out that portion in short-term corporate bond funds or exchange-traded funds,” he says.
But that’s just one point of view. Read on to learn what analysts from Russell Investments, OppenheimerFunds and more are saying about how to reposition portfolios in the lead-up to the presidential election.
1) Russell Investments: Keep an Eye on the Economic Outlook
Russell Investments analysts, in their updated 2012 Annual Global Outlook released on Aug. 28, expect market volatility to continue for the rest of the year, and the team expects only 2.1% real GDP growth for 2012 versus its earlier forecast of 2.5%. The team also lowered its forecast for the 10-year Treasury yield to finish the year at 1.8% compared with their initial December 2011 prediction of 2.6%.
Compared with their initial December 2011 outlook, however, the team has increased its year-end target for the S&P 500 to 1,375 from 1,300 and the Russell 1000 to 760 from 720, which would mean a 9% price return for the 2012 calendar year. With dividends added, that comes to a total return of just over 11%.
To sum it up, the Russell team’s forecast reflects better-than-expected corporate profit performance despite weaker-than-anticipated economic growth. (Note that the U.S. jobs report for August released last Friday shows that the nation’s economy added only 96,000 jobs last month, well below economists’ consensus expectation for 125,000 jobs.)
“The theme of our initial market outlook report for 2012 was that in a low-return environment, every basis point counts,” says Pete Gunning, Russell’s global chief investment officer, in the updated report. So far 2012 has unfolded close to Russell’s expectation, Gunning adds, but much could still go right or wrong over the remainder of the year.
“Making gains in this market environment requires an active, global, multi-strategy approach and identifying outperforming managers in every sector and region counts now more than ever,” said Gunning. “In a world of increased volatility and lower returns, we believe a dynamic approach to investing to take advantage of opportunities including nontraditional alternative as they present themselves will increasingly become the norm for successful investors.”
(Please check out AdvisorOne’s Election Impact 2012 home page for complete advisor-related election coverage.)
2) OppenheimerFunds: Get Out of the U.S. and Globalize
3) U.S. Bank Wealth Management: September’s the Big Month for Bonds
4) CFA Institute and ING: Don’t Worry, Buy Equities