Guggenheim’s 2020 Election Portfolios
Our portfolios are constructed based on the key aspects of each candidate’s policy agenda that we believe will move markets. We published daily updates in the run up to the presidential election on Nov. 3, 2020.
Investors closely monitor many indicators to gauge voter sentiment in an election year, including polling data and trading markets, but we also believe stock market performance can be used as a complementary indicator. To find out what the stock market was telling us, we constructed hypothetical portfolios of equally weighted stocks that we believed would perform well under a Donald Trump victory (Trump Policy Portfolio) and a Joe Biden victory (Biden Policy Portfolio).
Guggenheim’s Trump Policy and Biden Policy Portfolios
Trump Policy Portfolio
Biden Policy Portfolio
|1 Day Change
|5 Trading Day Change
|30 Trading Day Change
Source: Guggenheim Investments, Bloomberg. Data as of 11.3.2020. Past performance does not guarantee future results.
As markets are discounting mechanisms, we believed the relative performance of these portfolios in the months and weeks leading up to the election should reflect market expectations of the outcome. For example, if the Trump Policy Portfolio outperformed the Biden Policy Portfolio, then we could infer that the market was pricing a higher probability of a Trump victory. The opposite would be true if the Biden portfolio outperformed the Trump portfolio.
Our static portfolios were constructed based on the key aspects of each candidate’s policy agenda that we believed will move markets. Building on Strategas Research Partners’ work on forming policy-related baskets to track market-implied election odds, we selected a group of stocks that would hypothetically benefit from progress made on each candidate’s agenda items. For example, President Trump has supported another tax cut, so we included in the Trump portfolio stocks that could benefit most if taxes are reduced, such as financials and consumer discretionary. Other agenda items taken into consideration in our Trump Policy Portfolio include financial deregulation, support for the oil and gas industry, and the ‘America First’ policies intended to stimulate domestic manufacturing activity. Biden’s policy priorities include expanding healthcare access, increasing infrastructure spending, and addressing environmental sustainability. We believe a Biden victory would also mean reduced trade tensions with China.
We published daily updates to the portfolios through Election Day. Looking back, from Jan. 31, 2020, just before the COVID-related market panic, through Election Day on Nov. 3, the Biden Policy Portfolio gained 26.7 percent while the Trump Policy Portfolio lost 9.2 percent, meaning the Biden Policy Portfolio outperformed the Trump Policy Portfolio by 35.9 percentage points. From June 15, when Biden won the nomination, through Election Day, the Biden Policy Portfolio outperformed the Trump Policy Portfolio by 15.9 percentage points. In the last 5 trading days before Election Day, however, the Biden Policy Portfolio underperformed the Trump Policy Portfolio by 1.9 percentage points.
By this measure, at least, the markets apparently had it right. Biden was favored to win, but the race tightened heading into the election.
Important Notices and Disclosures
This material is distributed or presented for informational or educational purposes only and should not be considered a recommendation of any particular security, strategy or investment product, or as investing advice of any kind. This material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. The content contained herein is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation.
This material contains opinions of the author, but not necessarily those of Guggenheim Partners, LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information.
Guggenheim is not affiliated with Strategas Research Partners or Strategas Securities, LLC.
©2020, Guggenheim Partners, LLC. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Guggenheim Partners, LLC.
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