+

Cookies on the Business Insider India website

Business Insider India has updated its Privacy and Cookie policy. We use cookies to ensure that we give you the better experience on our website. If you continue without changing your settings, we\'ll assume that you are happy to receive all cookies on the Business Insider India website. However, you can change your cookie setting at any time by clicking on our Cookie Policy at any time. You can also see our Privacy Policy.

Close
HomeQuizzoneWhatsappShare Flash Reads
 

An influential group of investors refuses to give up hope Trump gets something done

Aug 27, 2017, 15:39 IST

Republican U.S. presidential candidate Donald Trump speaks to the media after receiving former Republican presidential candidate Ben Carson's endorsement at a campaign event in Palm Beach, Florida March 11, 2016.Reuters/Carlo Allegri

You don't need to follow the market to know that expectations around President Donald Trump's proposed policies have dimmed considerably.

Advertisement

But if you look closely enough at the investment universe, you'll notice one area hasn't abandoned hope: equity mutual funds.

That's according to Goldman Sachs, which says that mutual funds are still positioned to benefit from tax reform and deregulation - two of Trump's policies that are still kicking around.

The firm analyzed 543 equity mutual funds with $2 trillion under management and found that, on average, they were overweight a basket of companies that pay the most taxes. Goldman uses this group as a proxy for sentiment around tax reform, and their findings suggest that investors are still betting Trump can get something done.

In order to arrive at the conclusion that mutual funds still expect at least some deregulation, Goldman looked at the excess return for the banking industry, relative to the S&P 500. This is because they've maintained a "net positive weight in banks in excess of the their benchmarks and firms levered to changes in the 10-year US Treasury yield."

Advertisement

Here's a visual representation of Goldman's findings:

Positioning suggests that funds expect some tax reform and deregulation, but few rate hikes.Goldman Sachs Global Investment Research

As you can see in the chart above, Goldman provided some bonus analysis beyond Trump policy, pertaining to Federal Reserve rate hike expectations. In order to assess what mutual funds are doing, they looked at how the average large-cap manager is positioned relative to stocks that track the 10-year Treasury yield and inflation expectations, and found that they're underweight.

"Underweight allocations to firms that will most likely outperform if labor costs and inflation rise, the pillars of the Fed's dual mandate, suggest that mutual funds expect a slow pace of interest rate hikes," a group of Goldman analysts led by chief US equity strategist David Kostin wrote in a client note.

So mutual funds are bullish on the prospect of select Trump policies, but bearish on the number of rate hikes the Fed is going to do. Now only time will tell if they've put too much faith in Trump, and too little in the Fed.

Advertisement

So mutual funds are bullish on the prospect of select Trump policies, but bearish on the number of rate hikes the Fed is going to do. Now only time will tell if they've put too much faith in Trump, and too little in the Fed.

NOW WATCH: The looming war between Alibaba and Amazon

You are subscribed to notifications!
Looks like you've blocked notifications!
Next Article