Article 5 November 2024 2 min.

US elections: Business as usual for fixed income factor strategies

On November 5, 2024, a new US president will be elected. Will we see a continuation of the Trump presidency – after a 4 year break – or will the Democrats retain the presidency? And, probably more important for fixed income investors, will the new president also have the majority in congress and therefore the ability to implement his/her policies without having to compromise?

Dr. Harald Henke
Head of Fixed Income Strategy

Asset managers and investment banks are currently assessing probabilities for various outcomes and their implications on performance. Will interest rates rise or fall and will rates volatility remain elevated or will it fade? Which sectors will outperform? And are there individual companies that are likely to profit from or suffer under the new policies?

Systematic credit investors can be relaxed watching the upcoming elections. In the graph below we show monthly returns of a credit multi-factor portfolio. We highlighted the months in which presidential elections took place in the US. As can be seen, the return level does not seem to be strongly influenced by the political events. Returns in the election months do not differ significantly from the months before and afterwards. Moreover, there is also no visible pick-up in volatility in the data. It seems that credit factor returns were not impacted during the last four US presidential elections.

This is in line with the goals of factor investing to earn factor premia independent of the market environment. While fundamental credit manager may or may not be successful frontrunning the market moves after November 5, there is a high likelihood that the presidency will be business usual for factor strategies.

Systematic credit investors can be relaxed watching the upcoming elections.

Highlighted are months in which US presidential elections took place.
Source: Quoniam Asset Management GmbH
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