Navigating post-election uncertainty: your questions answered by our wealth experts

Given that the period leading up to the election was highly uncertain and LGT adopted a cautious ‘wait and see’ approach, what specific changes is the team making now in light of the new administration?

While we now have certainty regarding the identity of the President and a reasonable understanding  of Congressional control - though the results for the House of Representatives remain unconfirmed – we do not have any clear indication of the new administration’s policy priorities. As the Secretary of Defence once remarked during the last time the Republican party won the popular vote, “we are in the realm of known unknowns”. 

Currently, our best reference for the next four years remains the first Trump presidency and to describe that as inexact would be an understatement. However, based on past actions, we can reasonably assume that a second Trump administration would pursue a so-called pro-growth domestic agenda, characterised by deregulation and a bias towards lower taxes. This may result in a supportive environment for equity market returns. 

We have been increasing our overweight position in equities within portfolios throughout 2024 (where feasible) and anticipate maintaining this stance in a less interventionist environment, provided that economic growth remains stable.

How do potential tariffs impact the portfolio?

The Biden administration has maintained most of the tariffs implemented by the first Trump administration and imposed additional tariffs on certain Chinese goods in 2024. Whilst evidence suggests that tariffs increase inflation and decrease economic growth for all parties involved, the global economy has remained resilient despite their imposition. Media speculation about new tariffs has caused share price volatility but has not yet derailed structural growth trends. 

In our portfolios, we have limited exposure to final goods being imported to the US from China. Where this exposure exists, it primarily affects American companies, which we believe will face pressure to onshore or nearshore production. This shift could become a significant factor in the upcoming review of the United States-Mexico-Canada Agreement (“USMCA”), the successor to the North American Free Trade Agreement (“NAFTA”), scheduled for 2026.

Despite its initial publishing date of 1 November 1987, “Trump: The Art of the Deal”, can be seen as a reliable guide to the negotiating strategy of President Trump. The book emphasises the importance of leverage in negotiations and advises signalling to a negotiating partner the consequences of not achieving the desired outcome. Given that tariffs were a key strategy during the last Trump administration, it is plausible that they could be re-imposed to incentivise counterparties to negotiate. However, recent reports have emerged over the weekend that suggest the UK may be exempt from general tariffs, indicating that President Trump views tariffs as a strategic tool in his negotiation arsenal.

Does the inclusion of RFK Jr. in the Trump administration change LGT’s stance on how you invest in the Healthcare sector?

Whilst President Trump has indicated a role for Robert F Kenedy Jr. (“RFK Jr.”)  in his administration, it is unclear what form this role may take. It is worth noting that appointments to lead government agencies, such as the FDA or CDC, must be confirmed by the Senate. RFK Jr. is perhaps best known for his opposition to vaccine mandates, although there are currently no federal vaccine mandates for the general population. Recent social media posts, which should always be taken with caution, suggest RFK Jr. has no plans to restrict access to vaccines. Our portfolios have limited exposure to vaccines at present, but we would consider all scenarios and political policies before making investments in any sector.

RFK Jr. has also suggested limiting corporate influence on public life through lobbying and advertising, targeting chronic disease in children and eliminating the addition of fluoride to drinking water. These proposals have varying impacts on public health, but their direct investment implications are limited. More significant than these pronouncements is the future of Affordable Care Act (“ACA”) subsidies, which is due to expire in 2025. The expiration of these subsidiaries could dramatically impact the affordability of health insurance for those reliant on the ACA marketplace.

While the US has the world’s largest healthcare market, we invest in globally exposed pharmaceutical companies. The election result does not change our assessment of the relative attractiveness of companies we invest in. 

With Trump promising lower taxes for Americans domestically, is this likely to affect taxes for Americans abroad?

US Citizens who live abroad still have to file US tax returns with the Internal Revenue Service (“IRS”)  (and in some cases with the US state in which they last resided). This means they may have to pay taxes in the US as well as their country of residence, depending on whether a double taxation agreement exists. As such, changes to domestic tax rates could be beneficial to Americans living abroad.

During the campaign, Trump stated that he “supported” ending the double taxation of overseas Americans and would look to reform the taxation of millions of US citizens overseas if re-elected to the White House.

While this would initially appear beneficial to Americans living overseas, those living in higher-tax countries (such as the UK) that have a double taxation agreement with the US will not see a significant impact in their overall tax burden. This is because they typically do not pay a “double tax” but rather pay the higher level of tax with a foreign tax credit offsetting US taxes.

The real issue for US citizens living abroad is the administrative burden and cost of filing US tax returns. It is not clear from the Trump campaign’s proposals whether they intend to cease US taxation of US citizens living abroad (except on their US-sourced income) or take some limited steps to address the compliance burden.

Securing support in Congress for eliminating the US taxation of US citizens living abroad is likely to be challenging for President Trump, even with a majority in the Senate and possibly the House (we are still awaiting the results at the time of writing). Such a tax reduction would need to identify an offsetting revenue source, and it will be hard to convince politicians to sacrifice something on their US domestic agenda to benefit Americans living overseas.

In summary, it is likely that such a significant step change to the US tax system would be incredibly complicated to pass and implement. Any change would likely involve a lengthy and complex transition period with a host of anti-avoidance measures.

What policies is Trump likely to implement via executive order that might have the quickest impact on the economy?

Given the unpredictability of President Trump, it is challenging to predict with certainty which Executive Orders he might announce. However, we can discuss the potential areas where Executive Orders could have a significant economic impact. 

One area of focus is tariffs. While the Constitution grants Congress the authority to impose tariffs, the President can use Executive Orders to impose tariffs on grounds of national security, along with limited additional powers granted by Congress. 

However, Executive Orders related to the oil and gas industry are likely to have the quickest impact on the economy. For instance, President Biden revoked a key permit for the Keystone XL pipeline by Executive Order on his first day in office, signalling his commitment to environmental policy. Similarly, President Trump could reverse a wide range of initiatives announced this year by the Biden administration. Such actions could lead to a reduction in oil and gas prices. 

A decrease in prices at the pump has a disinflationary effect, encouraging consumer spending due to lower costs. This stimulatory effect on the economy could be immediate and significant. 

In summary, in our opinion Executive Orders targeting the oil and gas industry are likely to have the fastest impact on the economy by reducing energy prices and stimulating consumer spending. 

Are the changes within my LGT portfolio at an asset allocation and/or a security level?

We have recently made changes to portfolios at a security level. These changes were based on an assessment of the long-term investment potential of the companies involved, rather than in response to the election result. As long-term investors, we are cognisant of the policy backdrop influencing our portfolio holdings, but this does not drive our equity selection process.

As previously stated, we increased the equity allocation of portfolios (where possible) during 2024, recognising the ongoing strength of the global economy. We are currently comfortable with the overall level of equity allocation but could adjust it if our confidence in the economic outlook increases or decreases.

Fiscal policy has a greater impact on the fixed income allocation of portfolios. At present, we do not have sufficient visibility of the new administration’s policy to consider changing our portfolio positioning. Our portfolios continue to be positioned for a gradual loosening of monetary policy.

What should I be considering from a wealth planning perspective in light of what is looking like a win across the House?

President Trump’s campaign has lacked detail on proposed tax policies, focusing instead on broader issues such as immigration and the overall economy. However, we believe it is likely that he will look to extend (or make permanent) many of the provisions from the Tax Cuts and Jobs Act (“TCJA”) that are due to expire after 2025. 

We believe we may see lower individual tax rates, an increase in the standard deduction and an extension of the estate and gift tax exemption (which is due to halve at the end of 2025). However, these changes are not guaranteed.

There is also speculation that the president might pursue further reductions beyond those provided by the TCJA, potentially affecting income taxes, capital gains taxes and corporate taxes. Again, this is not certain.

Until there is more clarity on the tax landscape, the best course of action is to continue reviewing your current plans in line with your overall objectives and where possible, retain flexibility in your structuring. While the time pressure around US estate planning may have been removed, it would be imprudent to stop planning altogether. The extension of TCJA provisions is not guaranteed and future administrations may revisit past proposals. Tax regimes evolve with each administration and therefore continuously reviewing your financial plans to ensure they remain aligned with your objectives is key. 

The post-election landscape is always a time of adjustment and strategic planning. While the new administration's policies and priorities will gradually unfold, our commitment to your financial well-being remains steadfast. By maintaining a balanced and flexible approach, we aim to navigate these changes effectively, ensuring that your investments and financial plans are well-positioned for future opportunities and challenges.  As always, continuous review and adaptation of your financial strategy in line with evolving circumstances will be crucial and we will continue to invest with a diversified and long-term approach.