By continuing to use this site you consent to the use of cookies on your device. Find out more about our cookie policy and the types of cookies we use by clicking here

Are Investors Dumping Trump?

A year on from Donald Trump's election as US president, we take a look at whether investors are sticking with US equities or selling up

David Brenchley 15 November, 2017 | 9:31AM

Donald Trump has struggled getting his reforms through, but tax cuts are back on the agenda.

Investors have piled cash into US equity funds and exchange traded funds (ETFs) to the tune of £8.5 billion since Donald Trump was elected as president a year ago, according to data from Morningstar Direct.

The inflows are impressive, despite a lack of meaningful action from the political regime so far and a growing concern over whether Trump’s business-friendly pre-election promises will materialise. But the prevalence of tracker funds high up the best-buy list suggests investors are keen to catch the end of the rampant bull market that has climbed steadily since 2009.

Since 2009, the S&P 500 is up more than 300%, and the rally sees no sign of slowing just yet. The S&P 500 is up almost 20% in the past year and more than 15% year-to-date, with the NASDAQ up nearly 30% in the past year and 25% year-to-date. They have both been driven in the main by the tech behemoths Facebook (FB), Amazon (AMZN) and Google parent company Alphabet (GOOGL).

The data show 2017 is set to be the first year of net inflows into funds in the Investment Association North America sector since 2013, after three years of net outflows totalling £2.2 billion.

What are Investors Buying?

Over the past year, six of the 10 funds with the most inflows among UK investors were passive; the 10 with the most outflows are exclusively active. The ACS US Equity Tracker, Vanguard US Equity Index and HSBC American Index at the top of the inflows list. The highest active fund was Artemis US Extended Alpha. The Vanguard fund is rated Gold by Morningstar analysts.

Almost €8 billion (£7 billion) has been pumped into European-domiciled US large-cap equity ETFs, meanwhile. Demand for US ETFs peaked in the fourth quarter of 2016, immediately after the election, at €4 billion but has slipped back in subsequent quarters.

iShares Core S&P 500 ETF saw the most inflows at €2.5 billion, with Lyxor S&P 500 ETF and DBXT MSCI USA ETF following with €1.6 billion and €1.1 billion respectively.

Plenty was promised on the election trail, including repealing Obamacare, tax cuts and a $1 trillion infrastructure package. What’s actually happened 12 months on, asks Hartwig Kos, chief investment officer at SYZ Asset Management? “Obamacare is still in place and the debate about tax reform has barely begun. It has also gone awfully quiet on the matter of making US infrastructure ‘second to none’.”

But tax reform is back on the agenda. Trump had made noises about cutting the US corporation tax from 35%, one of the highest rates globally, to 20%. It’s likely to be the first real piece of legislation enacted, though Nadia Grant, head of US equities at Columbia Threadneedle, still reckons the odds are just over 50%.

However, with the mid-term elections now a year away it’s becoming a bigger issue. “There are a lot of people in congress trying to make it happen so they can get elected,” says Walter Price, manager of the Allianz Technology Trust (ATT). “That’s a strong incentive to make things happen.”

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
Rating
ACS US Equity Tracker T1 GBP Acc184.30 GBP0.11
Allianz Technology Trust Ord1,145.50 GBX-1.25
Alphabet Inc A1,057.47 USD0.58
Amazon.com Inc1,174.26 USD0.87
Artemis US Extended Alpha I GBP Acc189.60 GBP-0.02
DBXT MSCI USA ETF 1C GBP5,262.00 GBX-0.19
Facebook Inc A178.39 USD0.05
HSBC American Index C Acc5.17 GBP0.12
iShares Core S&P 500 ETF USD Acc GBP19,082.50 GBX-0.69
Lyxor S&P 500 ETF D USD GBP2,018.80 GBX-0.69
Vanguard US Equity Index Acc420.04 GBP-0.31
About Author David Brenchley

David Brenchley  is a Reporter for Morningstar.co.uk