Exclusive- Union Investment: “We are positioned for a Clinton victory”
InvestmentEurope caught up with Björn Jesch, head of portfolio management at Union Investment on how the asset manager prepares for US election night.
As head of portfolio management, Jesch manages an approximately 240-person strong fund management team and more than €190bn of assets under management. As such, potentially far reaching events like the US presidential elections add additional pressure to the decision making process. Nevertheless, he approaches the event with cautious optimism.
“Considering the experience of the Brexit disaster, we certainly have to factor in the worst case scenario, it is not undeniable that rather unpleasant nationalistic movements have gained in strength across the globe” Jesch acknowledges.
“Nevertheless, our positioning is currently risk on. Within a scale of 1-5, 1 representing the lowest risk level, we are positioned at a 5 meaning that our ideal portfolio would have a low to non-existing exposure to core European government bonds whilst being overweight Developed and Emerging Market equities, Commodities and Emerging Market debt, we are neutral on European peripheral government bonds and overweight on investment grade corporate bonds because it just wouldn’t make sense to swim against the stream of ECB corporate bond purchases” he stresses.
What, then, are the key reasons for Union’s relatively calm outlook? “Above all, it is important to remember that in the US, the president does not make the laws, moreover, in order to win, Trump would have to win in all swing states, which we think is unlikely. We are therefore positioned for a Clinton victory and are unlikely to adjust our positioning. Either way, we don’t expect that there will be a significant stock market crash“ he predicts.
“Having said that, on the day of the elections, we will have to pull an all-nighter, from 1am, everyone will be in the office and we’ve got out first Investment Committee meeting scheduled for 6am. Of course nights like these are tough but at the same time, these extra challenges help to strengthen the team spirit and connect us together, there will be food provided and at some point the guys from the trading desk will probably sneak out for a Kebab to make it through the night” Jesch jokes.
“As soon as the first official results will come in, round 4:45am, we can expect the markets to turn very swiftly. Of course the extent to which we can adjust our positioning at that point will be very limited and initially focused on protecting ourselves from further drawdowns.”
This ties in to a general trend of asset managers increasingly acting like traders, as Jesch acknowledges: “Twenty years ago, coming to the office at 1am on the day of an important election and 6am investment committees would have been unthinkable, both because information did not circulate as swiftly and because we wouldn’t have been able to respond so quickly. But times have changed now and as asset managers, we increasingly have to try and combine short-term responses with a long-term outlook.”
“A good example is the levels of stock market volatility at the beginning of the year, which were clearly driven by algorithmic traders, trend followers and delta hedgers rather than by fundamentals. We do keep a very close look on these kind of data in order to assess whether there is still leverage in the market” he stresses.
“Another case in point is the response to the Brexit vote”, Jesch adds. “Having been initially focused on limiting draw-downs, on the Monday after the referendum, we decided to start buying again because our data suggested that most algo traders at that point had already sold their positions, that move turned out to be successful.”