Scott Wittman, Chief Investment Officer at American Century Investments, is one of the investment professionals I like to follow. Recently, Scott articulated that at American Century, politics has no value as a variable for investment analysis; there are no political inputs in the investment selection models at American Century. Each factor or data point included for investment analysis must have a history showing some consistent behaviors that follow repeatable patterns under specific circumstances. There is no reliable consistency or pattern to political aspirations and promises.
In the domain of investment policy, I find this principle of ignoring politics refreshing; and this principle is validated by the fact that the technology investment sector was the most strident in opposition to President Trump’s nomination, yet the technology sector has performed the best since his inauguration. Corporate leaders in technology think globally, manufacture globally, compete in global markets, and hire globally to maintain their competitive advantage. Trump’s “America First” nationalism is just the opposite. Using politics as an input would have guided investors to under-weight technology, yet it turned out to be the best sector.
Beyond politics, Thomson Reuters estimates that overall profits of S&P 500 companies have risen 12.4% in the first quarter, the most since 2011. Successful investors pay attention to earnings, not politics. Although the U.S. earnings growth rate is impressive and there is miniscule risk of a recession, the first quarter Gross Domestic Product number was weaker than expected at 0.7% when the consensus was for 1.2%. Many financial journalists refer to the 2017 stock rally as the Trump Trade even though the rally has been supported by strong fundamentals like earnings growth. The Trump administration has slammed into the difficulty of passing legislation in the U.S. Congress, and as the Trump trade fades a bit, global investment trade has taken the lead. We are succeeding by allocating more and more of your investments to international markets and to U.S. technology, as both of these areas are showing strong leadership.
The international and technology allocations are also working in our Stable Growth strategy as returns have been steady and positive in each of the first four months of 2017. The yield on the 10-year U.S. Treasury has declined since the Fed raised rates in March, and this lower yield has helped our bond fund positions contribute positively to the performance of Cash Reserves and Stable Growth. We hope you are enjoying the spring season, and we always welcome your calls.
Jim Bell, CFP®