A market sell off in the case of a contested U.S. election will be an opportunity to purchase
currently expensive U.S. stocks, Bryan Lee, Chief Investment Officer at Blue Zone Wealth
Advisors, told the Reuters Global Markets Forum on Thursday, October 29.
“We are holding on to a higher than normal level of dry powder … we want to be in a position of
strength to buy our high quality companies at discounted prices,” Lee said.
Following are edited excerpts from the conversation:
Q: What are your thoughts on today's GDP numbers, and what expectations do you have for growth going forward?
A: The 33.1% Q3 GDP print was very encouraging and given it beat expectations, shows the US economy showed its resilience and performed better than what many thought. With that being said, it is a backward looking number and the economy today moving forward faces many uncertainties.
Without additional stimulus and the number of virus cases rising, the economic outlook here domestically is certainly murky.
Q: Certainly - do you see more local lockdowns across the U.S.?
A: It is hard to say. There is a certain amount of "Covid fatigue" going on across the country and we are seeing different states mandate different policies. I expect this to continue, which inevitably will translate into an uneven economic recovery throughout the US.
Q: Could this provide an impetus for policymakers to pass more aid before the end of the year?
A: I think the question isn't whether or not we will get more fiscal stimulus, it is more of a question of how much and when. This will largely depend on the outcome of elections and when we have the definitive answer of the outcome.
Q: On the election, from an investment perspective, what is the optimal election result?
A: I will start by saying the optimal result for the markets will be a clear winner without the possibility of a contested election next Tuesday. A delayed result or contested result will create a massive amount of uncertainty and markets tend to sell off under this scenario.
Given the backdrop of potential stimulus, it’s not as easy of an answer as it normally would be. There is a potential scenario that under a Biden White House, we would get more stimulus than under a Trump White house. This would be positive for the markets. However, the markets would most likely react favourably to a Trump re-election.
Q: Got that, you don't think markets may be overpricing the chances of a Biden win?
A: I think everyone is very cognizant of what happened in 2016 and how the polls were giving investors the wrong signals. Investors are looking at the updated poll data but have an extra level of scepticism this time around. However to your point, the markets are sending a signal that they believe Biden is in the lead today. Historically, the S&P has done a very good job at predicting outcomes of elections by tracking the 3 month performance before the election. The S&P just turned negative which would indicate the incumbent is expected to not be re-elected.
Q: How are you adjusting portfolios for election related volatility, especially if a contested scenario plays out?
A: We are holding on to a higher than normal level of dry powder to take advantage of a market sell off if a contested election plays out. We want to be in a position of strength to buy our high quality companies at discounted prices. We like our current portfolio and would look to add to our names. We also have a long list of other companies that we would love to own at the right price. A market sell off may present an opportunity to add those to our portfolio.
Q: What are some stocks or sectors on your radar?
A: We are still constructive on the mega cap tech names that have been beneficiaries of the Covid lockdowns. We also believe pockets of the financial sector remain very attractive and have yet to recover fully from the sell off they experienced. Blackstone, for example, had a very good earnings release yesterday. Their fund performance showed great resilience, fee related earnings grew close to 40%, they raised north of $15B for the quarter, and started to deploy more of their dry powder. The stock is yielding double what the S&P 500 is and we see continued momentum for their business.
Q: With yields at such lows and likely to stay there for some time, are there "safer " haven alternatives that you are looking at for your clients in credit or other avenues?
A: We are very cautious on reaching for yield today and would advise others to do the same. We are starting to consider giving up liquidity for yield and looking to the private market to get that pickup in yield.