Obviously, the results of the upcoming presidential election will affect domestic assets, but some outcomes could impact foreign equity markets, too.
With that in mind, advisors may want to consider to bespoke allocations such as WisdomTree’s Developed International Model Portfolio.
“This model portfolio is designed for investors with a long-term horizon looking for exposure to a broad universe of Developed International equities primarily using factor focused ETFs,” according to WisdomTree. “The selected ETFs provide certain factor tilts that have the potential to generate excess return relative to comparable cap-weighted benchmarks over longer-term holding periods. The strategies may use both WisdomTree and non-WisdomTree ETFs.”
One benefit of this model portfolio, particularly if a blue wave comes to pass on Election Day, is exposure to European equities.
How a Blue Wave Gives Europe a Boost
The model portfolio doesn’t featured dedicated Europe exchange traded funds, but several of its components offer robust exposure to European equities in conjunction with broader ex-U.S. developed markets holdings. That could prove relevant and rewarding amid a blue wave.
“Should the Democrats make a clean sweep of it in November, the European economy could get a much-needed boost from the U.S. election,” reports Barbara Kollmeyer for Barron’s. “That is according to Goldman Sachs economists, who predict that a win by Democratic candidate Joe Biden and possibly unified control of Washington would mean a fiscal stimulus package that could lift euro-area gross domestic product by a cumulative ½ percent over 2021-22.”
For the better part of a decade, if not longer, European equities moved in fits and starts, typically lagging U.S. equivalents while providing advisors with little reason to add developed international diversification to client portfolios.
With the dollar weak and the euro strong, that scenario could be improving, providing the impetus for advisors to revisit Europe.
Like other developed markets, many European markets, both in and out of the Eurozone, are home to major equity benchmarks with higher dividend yields than the S&P 500. The yield disparity between European stocks and bonds has been widening as recent global uncertainty pushed investors out of the equities market and into safe-haven fixed-income assets.
Citing stimulus efforts following a blue wave “the Goldman team looked at typical spillovers linked to stronger U.S. demand on euro-area real GDP. Previous studies have pointed to a boost for Europe of 0.1 to 0.25% for each 1 percentage point rise in the U.S. output gap. The midpoint of this range suggests that after two years, European real GDP could get a 0.4% lift,” reports Barron’s.
For more on how to implement model portfolios, visit our Model Portfolio Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.