QD view – as Trump’s nominees for his cabinet court controversy, we have a look at some possible implications.
On Thursday, we published a note on Polar Capital Global Healthcare – Vital signs are good. In it, we highlighted the managers’ belief that the sector is well-positioned to underpin the sector’s growth story for the foreseeable future. We did mention though, the disturbing rumour that Robert F Kennedy Junior was up for a senior US healthcare role. Now we learn that he has been recommended for head of the US Department of Health and Human Services, which would give him control of the Food and Drug Administration (FDA) and the Centers for Disease Control and Prevention (CDC). That is worrying because he has some very odd ideas about vaccines and the role of government in promoting good health practices.
The FT highlights that another Trump cabinet nominee, Vivek Ramaswamy – co-head (alongside Elon Musk) of the Department of Government Efficiency (DOGE), wants to make it faster and easier for new therapies to get approval from the FDA.
Unsurprisingly, the news has affected share prices of big pharma stocks, but there is still so much uncertainty about the practical effects of this, and (as we also noted) PCGH has a significant underweight exposure to US healthcare stocks anyway, so it is definitely no cause for panic.
Ramaswamy has his fair share of oddball ideas, including withdrawal from NATO and removing requirements for non-discriminatory hiring policies that have been in place since 1965. His new job would let him enact his goal of scrapping a swathe of Federal departments including the CDC, the FBI, the IRS, and even the Nuclear Regulatory Commission (he is, however, a fan of nuclear power).
Matt Gaetz is up for attorney general despite sexual misconduct allegations, Tulsi Gabbard – who seems to be a fan of Putin’s Russia – is up for the job of overseeing the CIA and the FBI (if it isn’t abolished), Pete Hesgeth, a TV journalist, gets to be Secretary of Defense.
These candidates for high office seem designed to provoke – and may not make it through confirmation hearings. However, the key takeaway seems to be that Trump is determined to demolish the infrastructure that keeps the US running and see whether something more efficient (and no doubt lucrative, for those with the right connections) emerges from the rubble.
The S&P500 rose by about 5% in the days following the election, but is drifting off now. Navigating all of this is not going to be easy. Of the funds focused on North American stocks, Pershing Square Holdings (PSH) may find itself in an interesting position if manager Bill Ackmann is also put forward for a job in the administration. He has been very public with his support for initiatives such as DOGE.
On Tuesday this week I got to meet the managers of the value portion of JPMorgan American’s (JAM) portfolio – Jonathan Simon and Jack Caffrey. JAM’s portfolio is comprised of 20 best growth ideas, 20 best value ideas, and exposure to a basket of smaller companies. As you’ll know from our Alliance Witan notes, we quite like the idea of blending value and growth in the same portfolio. It is a style that has worked well for JAM, which has been the best-performing North American trust since the approach was adopted.
JAM is overweight financials, which as I discussed in a recent Citywire article, are likely to be a beneficiary of a bonfire of regulations, and – I suspect – higher for longer US interest rates. The clear winner here is Polar Capital Global Financials (PCFT).
JAM has a corresponding underweight exposure to technology, with no exposure to Tesla. Musk’s car company’s share price is up strongly since the election, perhaps on hopes that Trump’s trade policies will choke off foreign competition, while ending EV subsidies will cripple existing and potential domestic rivals, giving it a near monopoly on electric vehicles (EVs) in the US.
Another Musk stock that managers will be watching is SpaceX, which is the largest holding in some Baillie Gifford funds, including Baillie Gifford US Growth Trust (USA) and Edinburgh Worldwide (EWI). It probably hopes to win new business from the new administration. There are plans for a tender offer of SpaceX stock at a higher price than is being used in the NAVs of these funds in December.
As an aside, given the size of the SpaceX position in EWI’s portfolio (11.9% at end September) and the incongruity of a small cap trust having such a large company as its largest holding, I am hoping to see that position trimmed.
The new government probably won’t have much of an impact on the growth of AI, and the associated demand for data and power that derives from that (although I have been wondering if it would seek to use curbs on exports of Nvidia chips as a weapon in its trade wars). I discussed power price aspects of this in the recently published note on Pantheon Infrastructure (PINT) – Powering up.
As featured in the note, PINT’s great success story has been US power generation business Calpine. Baring a savage economic slowdown, it and the other power companies should continue to benefit from the growth in demand for power. Most of Calpine’s fleet is powered by natural gas. The feedstock for that could get cheaper as Trump encourages resurgent fossil fuel production. It could be a beneficiary of his energy policies.
The data centre power demand story has been reflected in the decent NAV growth being generated by Ecofin Utilities and Infrastructure (EGL) over the past year. Since the election, companies with big renewables exposure such as NextEra Energy have sold off a little on expectations of an end to subsidies for new plants. However, EGL also has exposure to winners in areas such as nuclear power too. I would trust its manager to navigate his way through this.
The main problem we have is that Trump is so unpredictable, has a track record of falling out with previous department heads, and policy could change on a dime. The one thing that we could predict is more volatility, which could create opportunities for agile investors.