Brent Puff, vice-president and senior portfolio manager at American Century Investments, has said that while the policy on corporate tax from newly elected US President Joe Biden has unnerved investors, the pace of progression out of the pandemic is of greater concern.
“The likelihood of more taxes is by no means immaterial in our investment decision-making, but the speed at which the global vaccination rollout continues will underpin markets for the remainder of this year,” Mr Puff said.
“Tax changes will however play a role in how some particular sectors progress. President Biden has indicated he wants to make it more difficult for corporates to shelter profits in low tax jurisdictions.
“If tax rates go up, it will slow down the progression of corporate profits and healthcare and tech are the most vulnerable. The market will have to adjust to that reality over time.”
He added the market recovery is likely to have a pro-cyclical bias, favouring more economically sensitive sectors and industries.
“The composition of equity markets around the world is not equal; the US market has a huge technology and healthcare component – around 40 per cent – you don’t get that sort of exposure in other markets,” Mr Puff said.
“Non-US markets tend to be more pro-cyclical and may start to be favoured more than they have been in recent history.”
American Century vice-president and senior portfolio manager Trevor Gurwich added companies engaged in renewable energy will attract investment flows, with stocks that are beneficiaries of government plans and regulations to cut carbon dioxide emissions to draw investor interest.
“The US government has green energy initiatives which include incentives and regulations for energy-saving measures which have impacted building codes and efficiency standards. The trend towards electrification and lighter parts within the auto sector is also closely tied to these trends and is a space we are watching,” Mr Gurwich said.
“We have a strong preference for companies that have stock-specific drivers of growth, such as a new management team or an improving competitive position.
“Importantly, the Biden administration is unlikely to change any of the policies relating to renewable projects as they tend to be quite cost competitive. Investments in energy efficiency will continue to increase and it’ll be a key theme of 2021,” he said.
Sarah Simpkins
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].
