Election Faceoff: Harris and Trump’s Policy Differences and How to Weather Volatility

US Election 2024
Althea Spinozzi

Head of Fixed Income Strategy

Summary:

  • Harris-Trump Policy Divergence Brings Risks and Opportunities: The stark differences between Kamala Harris's and Donald Trump’s policies—ranging from corporate taxes to spending and sectoral focus—will have significant effects on financial markets. Understanding these diverging approaches is essential for investors looking to position their portfolios for the mid to long term, as each candidate’s policies will impact various sectors differently and create both risks and opportunities depending on the election outcome.
  • Use Defensive Instruments to Manage Volatility: Investors can protect their portfolios from election-driven market swings by using diversified ETFs, bonds, gold, and options strategies. Defensive sectors such as utilities and consumer staples, as well as safe-haven assets like gold and bonds, can offer stability during volatile periods.
  • Hedge Against Currency Fluctuations: Election news can influence the strength of the U.S. dollar, so investors might consider currency hedging strategies. Foreign currency funds like those focused on the Euro, Japanese Yen, or Swiss Franc can help mitigate risks associated with unfavorable currency shifts during major policy changes.


As the Harris-Trump debate unfolds and news surrounding it emerge, it's crucial to understand how each candidate's policy proposals could significantly impact financial markets. The decisions made in the election will have a ripple effect—from spending and tax strategies to national debt and which sectors thrive or struggle. That’s why we’ve put together this table as a compass to help navigate the potential economic impacts of Kamala Harris's and Donald Trump’s policies.

But remember, the U.S. election brings both risks and opportunities for investors. The key to successfully positioning your investments in the mid to long term is understanding how fiscal policies are likely to evolve. Yet, with so much uncertainty in the air, it’s wise to consider protecting your portfolio from election-driven market volatility. In this piece, we’ll explore some of the best tools and strategies to weather what could be a bumpy election season.

The table below is based on data from the Penn Wharton Budget Model, a nonpartisan, research-based initiative that provides accurate, accessible, and transparent economic analysis of public policy's fiscal impact. It serves as a useful guide to help you prepare about what lies ahead.

Strategies for Stability: Protecting Your Portfolio in Uncertain Times

Given the potential for volatility caused by election-related news and policy changes, investors can use various strategies and instruments to manage risk and protect their portfolios:

Diversified ETFs:

One can minimize risk by investing in U.S. and global stocks with lower volatility and defensive sectors to weather election-related volatility. ETFs focused on low-volatility assets, defensive sectors like utilities or consumer staples, and bonds can offer protection while still positioning for potential growth, depending on the election outcome.

  1. iShares MSCI USA Min Vol Factor ETF (USMV). This ETF seeks to minimize risk by investing in U.S. stocks with lower volatility compared to the broader market. It's designed to provide exposure to less volatile companies, offering a more defensive position during uncertain times like elections.
  2. iShares MSCI Global Min Vol Factor ETF (ACWV). This ETF focuses on minimizing volatility by investing in global stocks with lower risk, making it a solid option for managing market swings during election uncertainty.
  3. iShares U.S. Utilities ETF (IDU). Utilities are a defensive sector that tends to be less sensitive to market fluctuations. This ETF provides exposure to utility companies, which are often considered safe investments during periods of volatility.
  4. Vanguard Consumer Staples ETF (VDC). Consumer staples, such as food and household products, tend to perform well during periods of economic and political uncertainty. This ETF offers exposure to companies that produce essential goods, helping shield your portfolio from election-driven market swings.

Bonds:

Sovereign bonds offer lower-risk alternatives that provide stability during periods of heightened uncertainty. Bonds tend to be less volatile than stocks, making them a reliable safe-haven during election-induced market swings. Plus, bonds are an excellent way to diversify your portfolio, helping balance risk across different asset classes. You can learn more and find an inspirational list of bonds here.


Hedging with Options
:

Options strategies can provide downside protection by allowing investors to hedge their positions against potential declines in stock prices due to election-related market fluctuations. To learn how, check out Koen Hoorelbeke's insightful guide here.

Gold and Precious Metals:

Precious metals like gold are widely regarded as a safe haven during times of inflation and market volatility. Gold typically performs well in periods of uncertainty, making it a go-to investment during elections and major geopolitical events. For a deeper dive into the current trends in gold, check out Ole Hansen’s expert analysis.

Currency Hedging:

Election-related news often affects the strength of the U.S. dollar. By using currency hedging strategies or investing in foreign currency funds, investors can protect against unfavorable shifts in currency valuations that could arise from major policy changes. Here are a few examples of popular foreign currency funds that investors might consider:

  1. Invesco CurrencyShares Euro Trust (FXE):
    • Currency Exposure: Euro (EUR)
    • Description: This fund offers direct exposure to the value of the Euro relative to the U.S. dollar. It is suitable for investors who want to hedge against the weakening of the U.S. dollar or those who expect the Euro to appreciate.
  2. Invesco CurrencyShares Japanese Yen Trust (FXY):
    • Currency Exposure: Japanese Yen (JPY)
    • Description: This fund provides investors with exposure to the Japanese yen relative to the U.S. dollar. Investors might use this ETF to hedge against fluctuations in the yen or to benefit from a weakening dollar.
  3. Invesco CurrencyShares Swiss Franc Trust (FXF):
    • Currency Exposure: Swiss Franc (CHF)
    • Description: This ETF provides exposure to the Swiss franc, which is often considered a "safe-haven" currency during periods of global financial uncertainty.

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