by Tom Bradley

Elections normally don’t figure into our investment decision-making process. They garner a lot of headlines, but end up having no impact on asset values, which are based on long-term profits. We’ve got one right now, however, that is the exception to the rule. The U.S. election has our attention.

If Mr. Trump were to win, which at this point is not the most likely result, we would expect there to be significant turbulence because as best we can tell, the market is betting on Mrs. Clinton. Mr. Market doesn’t like negative surprises.

In previous mini-crises (Greece, Brexit, China slowdown), the market behavior has been predictable – there’s been a rush to buy U.S. assets and dollars. Our neighbour to the south is always the safe haven. If Mr. Trump is elected President, it’s impossible to predict where the safe money will go.

So we have an outcome (Trump winning) that is unlikely, but has the potential to be very disruptive if it were to occur.

At Steadyhand, we believe we’re reasonably well positioned if the unlikely were to occur. We’re carrying a substantial cash reserve (17% in the Founders Fund) and have limited direct exposure to U.S. companies. We didn’t arrive at this position because of the election, but rather because of the risk/reward offered by different asset classes. We think it’s the right mix in light of all the possibilities.

Needless to say, our managers are on high alert and have already been adding to or trimming holdings that have been caught up in the election hype (e.g. buying healthcare stocks).

This cautious positioning has a trade-off in that we will not fully benefit if there is a Hillary rally. Given the potential crisis of confidence if Mr. Trump were to win, however, we believe it’s an appropriate balance.