While the election is still very much an open contest, current polls, the electoral math, and the historical advantage of incumbency suggest the most likely scenario is that President Barack Obama is reelected, albeit in a very close contest. At the same time, polls also indicate that the Republicans are in little danger of losing the House, and the Senate looks set to be close to a 50-50 split (with fewer moderates). In other words, Washington is likely to be even more divided in 2013 – if not more so – than it was in 2012. This will make it marginally more difficult to reach a compromise during the relatively brief seven-week window between the election and the New Year.
Where does this leave investors? I would advocate that an emphasis on what I have previously referred to as the semi-safe havens – investments that don’t fall under the classic definition of safe havens because they tend to have a higher risk profile. These would include international dividends, mega-caps, minimum volatility, and corporate and municipal bonds. I would also be ready to adjust the allocation depending on the outcome of the election, which I’d handicap as follows: does the election outcome make it more or less likely that we will hurdle over the cliff?
For investors looking for minimum volatility and mega cap solutions, I like the iShares MSCI All Country World Minimum Volatility Index Fund (NYSEArca: ACWV) and the iShares S&P Global 100 Index Fund (NYSEArca: IOO). My preferred vehicles for yield are the iShares High Dividend Equity Fund (NYSEArca: HDV), given its low beta and quality screen, and the iShares Dow Jones International Select Dividend Index Fund (NYSEArca: IDV).
Russ Koesterich, CFA, Managing Director, is Global Chief Investment Strategist for BlackRock’s iShares business.
The author is long HDV, IDV and IOO.