Institutions Beware: Retail Investors Plan Massive Asset Shift Based on U.S. Elections

The U.S. election is looming over investment portfolios, with the majority of individual investors planning to make changes based on their belief that presidents influence the stock market, according to a Hartford Funds Management Group survey.

Sixty-two percent of investors said they expect to shift their assets within 12 months after the presidential election, while 45 percent of those surveyed planned do so in the run-up to the early November event. Hartford probed 872 investors with at least $100,000 in investible assets between August 5 and August 9, finding that client relationships are at stake in political leanings. 

While fund managers may see asset flows accelerate post-election based on investors’ expectations for how stocks will perform under the next president, those market fears are probably unfounded, according to Brian Kraus, head of investment consulting at Hartford Funds. But be careful addressing such concerns with clients, he warned.

Younger generations “almost unanimously” believe that it is very or somewhat important for financial professionals to hold political views aligned with their own, with 68 percent saying they would consider making a switch over a disagreement, according to Hartford Funds. That compares with 48 percent of older investors who desired such alignment. Older generations were also much less likely to discuss politics with their financial professionals, the survey found.

Investment managers should “tread lightly” around political discussions, engaging in them only when introduced by the client, Kraus said Wednesday in a phone interview. Kraus said he recommends advising investors that the political party of the president historically has not dictated the performance of the stock market, particularly as the perception that having a Democratic or Republican in the White House matters “a lot” to markets has increased since the previous election.

Younger generations are more likely to view a Democratic win in the U.S. presidential election as positive for their investment portfolios, while older investors tend to see a Republican victory as a better outcome for their portfolios, according to the survey. Hartford defined younger investors as age 18 to 44 and older ones as at least 45 years old.

Thirty-eight percent of older investors said they discuss politics with their financial professionals, compared to 83 percent of younger ones, Hartford Funds found. Only 27 percent of older investors see diverging political views as reason to consider a switch. 

While the political party of the U.S. president doesn’t influence stock market performance, Hartford Funds has found that stocks tend perform better when one single party doesn't control both the White House and all of Congress, Kraus said. That’s based on market data going back to 1937 — and contrary to what most surveyed investors believe, he said.

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Investors shouldn’t assume the market reaction to the upcoming election will be as strong as seen with the surprise victory of Donald Trump in 2016, according to asset manager Nuveen. “As we learned last time around, gauging the state of the race using the national popular vote is far from foolproof,” the firm’s global investment committee said in a new report on the U.S. election.

Still, should President Trump become reelected, and the Senate remain under Republican control while the House of Representatives stays controlled by Democrats, Nuveen expects a market reaction similar to 2016, when “high tax companies and those with greater regulatory risk outperformed.”

The firm’s investment committee said that “fiscal policy would not be quite as loose, given growing concerns among Senate Republicans about deficits, but a bipartisan stimulus plan around infrastructure would be on the table.” Trade policy under another four years of President Trump would be more adversarial and less predictable, Nuveen said, with tariffs increasing and becoming more numerous. 

A Joe Biden victory in November with the Senate control moving into the hands of Democrats would be mean “at least a moderate rise” in corporate and individual income taxes, as well as more federal spending to fund more fiscal stimulus and reforms to health care and environmental policy, according to Nuveen. Under a Biden presidency, “trade and foreign policy would become less volatile, with a greater emphasis on multilateral action,” the investment committee said.