How US Politics Can Mean Profit for Investors

When will the Fed start to taper quantitative easing? What is Obamacare? And how do political and economic reforms affect the stock market and investors?

Emma Wall 2 December, 2013 | 8:09AM
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Emma Wall: Hello and welcome to the Morningstar series 'Why Should I Invest With You?'. I'm Emma Wall and here with me today is Felix Wintle, manager of the Neptune U.S. Opportunities Fund. Hello, Felix.

Felix Wintle: Hi, Emma.

Wall: So the big story in the U.S. at the moment is tapering; will they, won't they. When can we expect QE to be tapered and what effect will it have on the stock market?

Wintle: So we think tapering will begin most likely in the second quarter of next year. We base that really on – the Fed said they’re very data-dependent and I think they are, but I think it really comes actually down to more of a sort of human behavioral factor. I think it's very unlikely that Bernanke is going to taper in his last ever meeting in December. I think it's very unlikely that Janet Yellen will taper in her first one. I think if she did so, that would amplify the message greatly, and I don’t think that's what the Fed wants to do. So that puts you at Q2 for the first available time really for them to taper. Janet Yellen is very dovish, so it may be later than that, but our base case is Q2 of next year.

Wall: That's almost well over a year since it was first announced. What will the stock market do when it happens?

Wintle: We're pretty sanguine about that. The reason for that is everyone is talking about tapering. They've been talking about tapering, as you say, for – by then it will be certainly a year. Bernanke first started tapering – sorry, he first mentioned tapering roundabout May, May 2. What I’ve noticed – the reason I am pretty relaxed about what the market is going to do is that the market is more than 100 points higher than it was back in May. So if tapering was the one factor that everyone was worried about, that was holding the market back, you'd expect the market not to be 7% above where it was back then.

So it's a bit like the fiscal cliff last year. Everyone is talking about the fiscal cliff and that did hold the market back I think. Q4 last year was quite a flat time, not much was happening. Then the minute they sorted fiscal cliff out on December 31, the market had this fantastic rally. So I think it's a similar thing. If everyone's talking about it, it's priced in and I don't think the market is actually – there is a lot of noise around what the Fed is going to do, lot of noise around tapering. But I don't think the market actually is that concerned. I think the market knows it's coming and it's priced in.

Wall: Another sort of political issue in the U.S. is Obamacare. I know you hold some healthcare stocks in your portfolio. What impact will that have?

Wintle: Well, Obamacare has been a real disaster, frankly, unfortunately. It's interesting actually, Obama's approval rating has just been going straight downwards, which he is down approval rate about 37%, which is very, very low. He is heading towards Bush in his last term. So it's been a real disaster. The website doesn't work, as I'm sure we’ve all seen on the news. It's been a very destructive and disruptive thing; 80% of covered people were very happy with the healthcare coverage and he is making them all change. So it's a real mess.

In terms of what it has – the effect it has on companies is generally a positive one, because in terms of utilization rate – so if you're going to cover extra 30 million people, that means they are obviously going to use more hospitals, use more kit, use more drugs and medical devices, et cetera. So I think generally it's a positive thing. Actually measuring that is quite difficult, because you’ve got to put 30 million people. It won't be – that won't be the whole number. It will be much less than that for various reasons and not everyone is going to sort of move straight in the start consuming healthcare, if you like. So it's difficult to measure, but broadly it's a positive tailwind for the sector.

Wall: Felix, thank you very much. 

Wintle: My pleasure. Thank you, Emma.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

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.

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Emma Wall  is former Senior International Editor for Morningstar