Following Donald Trump’s election victory, a number of hedge funds, including BlueBay Asset Management, are pivoting their strategies toward US Treasuries, oil, technology stocks, and major US banks, according to a report by Reuters.
Trump’s win has bolstered investor expectations of potential economic shifts, particularly due to his plans to lower corporate taxes, according to Russel Matthews, lead portfolio manager for BlueBay’s macro hedge fund, a part of RBC Global Asset Management’s $468bn portfolio.
A macro hedge fund typically bets on the broader economic outlook of a country. In this case, Trump’s policies have led to a notable shift in investor behaviour. US Treasury yields hit four-month highs on Wednesday as investors pulled back from government debt, signalling a possible return of “bond vigilantism,” a term used to describe market revolts against unsustainable government borrowing.
Matthews noted that BlueBay is taking a short position on 30-year US Treasuries, while going long on 10-year German Bunds. The fund also holds long positions in the dollar, while shorting the euro and pound, reflecting growing confidence in the US currency, which rose nearly 2% on Wednesday for its largest one-day surge in four years.
The potential for deregulation under Trump is boosting interest in the banking sector as well. The report cites Matein Khalid, Chief Investment Officer at Phoenix Holdings in Dubai, as suggesting that steeper bond yields could particularly benefit undervalued US banks like Citigroup. Trump’s administration may ease financial regulations related to capital requirements and mergers, a prospect that could benefit banks globally, said Nick Ferres, CIO at Vantage Point Asset Management in Singapore.
On the tech front, however, hedge funds are taking a more cautious approach. Dan Taylor, CIO of Man Numeric, a fund within Man Group, pointed out that the Magnificent Seven large US tech companies may encounter regulatory challenges under Trump. Although reduced regulation typically aids large corporations, Taylor speculated that these firms might face scrutiny due to their significant influence. “It wouldn’t be a stretch to imagine one of them being broken up, especially given past US precedents on monopolistic companies,” he said.
Meanwhile, Trump’s energy policies, which prioritise domestic oil production and aim to ease environmental restrictions, could drive crude oil prices lower by increasing supply. However, a tougher stance on Iran, including potential sanctions, may counteract this impact by limiting Iran’s oil exports, noted Sam Berridge, a portfolio manager at the Strategic Natural Resources Fund in Australia. While this could provide some price support, the extent remains uncertain given China’s reliance on Iranian oil exports.
