To The Moon

Hello, Tigers!

Welcome to the second article in our US Election series! In this piece, I’ll focus on how to find relatively certain investment opportunities amid the uncertainties of the election season.

Ps:

In the previous article, I highlighted a bullish opportunity in $Tesla Motors(TSLA)$ following its initial surge and trading opportunities in $SPDR S&P 500 ETF Trust(SPY)$ and US Treasuries:

Article link: [US Election #01] Tesla soar 10% overnight: What new opportunities arise with the US election?

Market Overview (2024/06/17-2024/06/30)

In the recent period, global major indices have shown mixed performance. US small-cap stocks have seen significant gains, and the S&P 500 and Nasdaq also posted modest increases.

In the bond market, uncertainty surrounding the US election has led to a rise in US Treasury yields, causing declines across various bond asset classes. The forex market has also priced in election factors, with the US Dollar Index rising slightly and the Japanese Yen dropping significantly.

In the first half of this year, US stocks performed remarkably well, with the S&P 500 up 15.3% and the Nasdaq 100 up 17.4%, both continuously breaking historical highs.

However, as the market becomes increasingly crowded, the risk-reward ratio of investments has decreased.

For individual stocks, the "Magnificent 7" large tech stocks, led by Nvidia, contributed most of the index gains. In contrast, the equal-weighted S&P 500 Index only rose by 4%, indicating a concentration of trading activity. The VIX Index showed an implied volatility of 12.26, reaching its lowest level in nearly five years, while the Put-Call Ratio was just 0.47, reflecting market confidence in future gains.

The market has priced in excessive optimism for tech stocks, resulting in increasingly stringent performance expectations. For instance, despite Micron's strong earnings report, its stock price plummeted as it didn't significantly exceed analyst expectations. In such a market atmosphere, any slowdown or decline in earnings growth could lead to heightened short-term volatility.

Therefore, amid election market disruptions and potential economic instability, it is advisable to increase the allocation of defensive assets in your investment portfolio, such as healthcare, financial services, and industrial equipment sectors, which have recently shown simultaneous increases in volume and price.

Reasons for Allocating Defensive Assets

1. Unique Macro Environment: The current macro environment is characterized by persistent high interest rates and inflation, compounded by political and geopolitical uncertainties from the US election. Traditional defensive sectors also face certain risk exposures. For example, cyclical consumer companies, which benefited from post-pandemic inflation, now face a cooling labor market and declining marginal consumption propensity, potentially challenging future revenues and profits. For US Treasuries, despite a clear Fed rate cut path, long-term rates may remain resilient due to rising potential economic growth and election-related policy uncertainties, leading to a steepening yield curve and increased short-term volatility for long-term US bonds like TLT.

2. Healthcare and Financial Services: According to recent US consumption data, prices for healthcare services in the PCE index rose by 3.75% over six months, while actual healthcare service consumption increased by 5.91%, both outpacing overall PCE growth. The financial services sector also experienced relatively high growth in service prices and consumption. Healthcare, in particular, shows strong resilience and lower sensitivity to economic fluctuations compared to other industries. Long-term structural changes, such as an aging population and technological innovation, support future growth in this sector.

3. Infrastructure and Manufacturing: Both Trump and Biden's policy platforms for the upcoming election include expanding infrastructure construction and promoting the reshoring of manufacturing, offering revenue support for the industrial and equipment sectors.

We suggest increasing allocations to defensive sectors such as healthcare, financials, and industrials and equipment to enhance portfolio resilience against systemic risks in the future economy.

Practical Steps

A relatively simple and hassle-free approach is to increase fund allocations in your investment portfolio. Here are two funds I have focused on:

1. Allianz Income and Growth Fund A ( $ALLIANZ INCOME AND GROWTH "AM" (SGDHDG) H2 INC(LU0943347566.SGD)$ ), $ALLIANZ INCOME AND GROWTH "AM" (USD) INC(LU0820561818.USD)$ (USD))

   1. 

   2.   Reasons:

      • Balanced Asset Allocation: This fund achieves reasonable asset allocation with a blend of technology for profit and defensive sectors like healthcare and industrials for risk control. The fund includes stocks, bonds, and convertible bonds, further diversifying non-systemic risk and adopting a prudent investment strategy.

      • Strong Long-Term Performance: As of 2024/06/30, the fund has recorded positive returns in 75% of the years since its inception 12 years ago, with a 10.19% return in the past year and a 35.96% return over the past five years, outperforming similar funds.

      • Fund Manager's View: The fund manager is optimistic about AI's long-term opportunities but reduced exposure to technology and cyclical consumer sectors in May, increasing allocations to healthcare, financial services, and industrials.

2. AllianceBernstein Global Healthcare Fund ( $AB INTERNATIONAL HEALTH CARE PORTFOLIO "A" (SGD) ACC(LU0289739699.SGD)$ (SGD), $AB INTERNATIONAL HEALTH CARE PORTFOLIO "A" ACC(LU0058720904.USD)$ (USD))

   1. 

   2. Reasons:

      • Clear Investment Focus: This fund focuses on global healthcare and related sectors, providing exposure to companies with proven profitability and established product lines rather than speculative future potential. The investment style is steady.

      • Strong Long-Term Performance: As of 2024/06/30, the fund achieved a 14.73% return over the past year and 65.10% over the past five years, ranking among the top in its category. The fund's risk control is strong, with a maximum drawdown of only 7.34% in the past year and around 25% over the past five years.

      • Fund Manager's View: Despite potential macroeconomic impacts on certain healthcare sub-sectors, the manager believes the sector's economic sensitivity and dependence are lower than others, with high innovation potential and strong current profitability, offering attractive long-term opportunities for investors.

Investment Path

Open the Tiger trade app, click “search”, enter the fund code, select "Fund," and choose "Subscribe" or "Auto-Invest"!

Comment with your favorite investment products for the US election in the comment section to win Tiger Coins!