24 BARRON’S October 19, 2020
4.Will the U.S.
Dollar Index
(DXY) strengthen,
weaken,orstay
thesameinthe
next 12 months?
Crisis
Management:
1.Do you approve of the Federal
Reserve and Federal Govern-
ment’smovestocombatthe
current economic crisis?
Federal Reserve
Federal Government
2.How would you grade the
performanceofthefollowingin
dealingwiththisyear’sfinancial
crisis?
ABCDF
President Donald Trump
U.S House of Representatives
U.S. Senate
3.Whichofthefollowingbest
describes your view of the
growth of the national debt?
Very worried 40%
Modestly concerned 46
Notanissue 14
No change
64% 21 15
Weaken Strengthen
79% 21
Yes No
53% 47
Yes No
12
6
7
30
15
23
18
32
39
18
21
17
22
26
14
at the end of September, and drew
responses from 137 money manag-
ers from around the country.
While there’s no dearth of threats
to the market’s recent rally, 26% of
Big Money respondents view the
pandemic’s potential spread as the
greatest one. Another 17% point to
the U.S. election, while 12% most
fear a recession or depression.
Other prominent concerns: a possi-
ble collapse in corporate profits,
excessive equity valuations, fiscal-
or monetary-policy blunders, and
spreading civil unrest.
“We’re respectful of the risks that
are pretty apparent in the short to
intermediate term, and we’re cogni-
zant of the fact that volatility could
spike at any time,” says Bridges
Trust’s Ted Bridges. “But two or
three years out, we view ourselves
as constructive [on stocks]. History
argues there will eventually be a
vaccine and there will be a return to
more normal economic conditions.”
Bridges—who serves as president
and CEO of his family’s Omaha,
Neb.–based firm, which oversees
about $6 billion in assets—expects
S&P 500 earnings to recover fully
next year after 2020’s projected
15% slump. He looks for U.S. gross
domestic product to surpass last
year’s $21.4 trillion in 2022, a view
in line with more than half of poll
respondents.
“I see a couple of volatile months
between now and the end of the
year,” says Mary McGrath, execu-
tive vice president and portfolio
manager at Cozad Asset Manage-
ment in Champaign, Ill. “But I also
believe that the market always
anticipates what’s going to happen.
Once we get into 2021, and we get a
vaccine, and the economy starts to
pick up, the stock market will be
higher than it is today.”
About 25% of poll respondents
expect one or more vaccines for
Covid-19, the disease caused by the
coronavirus, to be available in the
U.S. by the end of this year. Another
60% see a vaccine coming in the
first half of 2021.
The U.S. presidential and con-
gressional elections, to be held on
Nov. 3, have weighed on investors
of late as they strive to determine
which outcome might be best for the
market. Our poll, like others, sug-
gests that former Vice President Joe
Biden will win the White House
from incumbent President Donald
Trump; 54% of money managers
anticipate a Biden victory.
Seventy-four percent of the man-
agers expect the Republican Party
to maintain control of the Senate,
while 94% think the Democrats
will keep control of the House of
the Representatives. The Big Money
poll closed before President
Trump’s Covid-19 diagnosis, and
voter polls and betting odds have
swung more decisively in the Demo-
crats’ favor since then.
No matter who wins, about two-
thirds of our respondents think the
next administration’s top priorities
should be controlling Covid-19 and
reducing unemployment. The
group’s No. 3 priority: passing an
infrastructure bill.
Three-quarters of Big Money
investors see Trump as the more
market-friendly candidate, but just
60% consider him better for the
economy than Biden would be as
president.
“The election is everything to
us,” says Harlan Cadinha, founder,
chairman, and chief strategist at
Cadinha & Co., in Honolulu. “We
assume that Democrats will sweep.
That’s a big transition.”
Should the Democrats gain full
control of both the executive and
legislative branches of government,
Cadinha sees an effort to pass a
stimulus bill and other measures,
such as an infrastructure package,
which could pick up some slack in
the economy. At the same time, he’s
concerned that the party would
push for higher corporate taxes or
an increase in the capital-gains tax
rate. These would be negatives for
the stock market, spurring a wave
of selling before they take effect.
“If there is a Democratic sweep,
this year’s most successful stocks are
apt to come down the most because
they’ve got the gains,” Cadinha says.
“People will move to capture those
gains this year, rather than next, so
you could see them get hit.”
Cadinha’s $2.2 billion firm is pre-
paring for a potential infrastructure
package by buying stocks such as
Caterpillar(ticker: CAT), which
would benefit from greater spend-
ing on construction equipment and
a recovery in global economic activ-
ity. In general, Cadinha is bullish on
industrial companies with strong
balance sheets that trade for more
reasonable valuations than some
highflying techs. He’s holding more
cash than usual, he says, and would
be ready to buy should the market
fall around the time of the election.
Other investors also see potential
election-induced volatility as a
chance to put money to work. Dur-
ing 2000’s contested Bush-Gore
election, stocks fell about 10%.
“There are some things we’d like
to be able to buy at cheaper prices,
and there is a possibility we can do
that if the election becomes messy,”
says TGS’ Hemphill, whose firm
manages about $300 million. “I
believe that Americans will always
do the right thing in the end. So we
would be buying if there’s disorder.”
Hemphill says that a correction
could be healthy for the market if
it reduces current valuations closer
to historical averages. He has been
leaning into relatively less expensive
pockets of the U.S. market, such as
small- and mid-cap value, and
looking for opportunities abroad.
Emerging markets are intriguing,
he says, given their cheap valua-
tions, relative to developed markets’,
and their potential for greater
growth over the coming economic
cycle.
Hemphill prefers theDFA
Emerging Markets Portfoliofund
(DFEMX) to other emerging-market
plays because it has lower individual-
country exposure than exchange-
traded funds such as theiShares
MSCI Emerging MarketsETF
(EEM). Those have become less di-
versified in recent years, with
China, Taiwan, and South Korea
growing to a combined two-thirds
of the underlying index’s weight.
A weaker U.S. dollar would be a
tailwind for non-U.S. markets, and
64% of Big Money respondents see
the U.S. Dollar Index declining in the
coming year. Forty-three percent
expect America to deliver the best
investment returns in the next year,
while 27% look to emerging markets
to take the lead. Europe and Japan
were each favored by fewer than
10% of our respondents.
There is little consensus on how
best to position a U.S. portfolio in the
months ahead. For example, 25% of
respondents expect technology to be
the best-performing sector, while
2020 BIG MONEY POLL
“Once we
get into
2021, and
we get a
vaccine,
and the
economy
starts to
pick up,
the stock
market
will be
higher
than it is
today.”
Mary McGrath,
Cozad Asset
Management