Trump victory prompts
U.S. fund managers to focus on inflation
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[November 11, 2016]
By David Randall
NEW
YORK (Reuters) - Donald Trump's surprise victory in the U.S.
presidential race is pushing mutual fund managers out of dividend stocks
and into the shares of financial, industrial and materials companies
that stand to benefit from rising inflation.
Although inflation remains subdued by most measures, U.S. longer-dated
Treasury yields rose on Thursday to their highest levels in more than 10
months after Trump emphasized infrastructure spending and other fiscal
stimulus measures in his acceptance speech on Wednesday.
Higher inflation lowers the relative value of bonds, with long-dated
debt the most vulnerable to inflation expectations.
Increased spending on infrastructure could spur growth and expand the
budget deficit, market participants say.
Dividend stocks, which have been viewed as an alternative for
income-focused investors given low bond yields, slumped in the wake of
Trump's victory. Utility stocks in the S&P 500 <.SPLRCU> are down 6.1
percent since Tuesday's close, while real estate companies are down 3.8
percent over the same time.
"Cyclical companies were unduly cheap going into this election, and now
we think that the inflation trade is here to stay," said Ernesto Ramos,
head of equities at BMO Asset Management Group in Chicago.
His funds have been adding to positions in financial companies such as
Wells Fargo <WFC.N> and Lincoln National Corp <LNC.N> that should get a
margin boost from higher interest rates, he said.
The Trump administration will be less likely to focus on regulations
that have tamped down on bank profitability and led to more stringent
lending practices, said David Ellison, a portfolio manager with
Hennessey Funds in Boston, who said he was adding to his regional banks
holdings.
"Any kind of easing of regulations will make loans easier to get and
banks more willing to lend," he said.
The S&P 500 bank index <.SPXBK> rose nearly 10 percent over the past two
sessions and closed Thursday at its highest level since July 22, 2015.
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Republican presidential nominee Donald Trump arrives for his
election night rally at the New York Hilton Midtown in Manhattan,
New York, U.S., November 9, 2016. REUTERS/Andrew Kelly/File Photo
Trump's promises to renegotiate trade agreements could also push
inflation higher by raising the cost of imported products, helping
domestic materials producers such as United States Steel Corp and
Commercial Metals Co, said Eric Marshall, a portfolio manager at
Dallas-based Hodges Capital.
"Anybody who competes with imports is going to see a benefit," he said.
Lamar Villere, a portfolio manager at New Orleans-based Villere & Co,
said his funds were adding to small-cap infrastructure and defense
companies, and he expects to see more mergers and acquisition activity
given Trump's repeated statements that regulations are holding back the
broad economy.
"We are looking at deals that might not have happened under a heavier
regulatory environment," he said.
(Reporting by David Randall; Editing by Rodrigo Campos and Leslie Adler)
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