In recent weeks, more analysts and market observers are discussing the possibility of a “blue wave” – the scenario in which former Vice President Joe Biden wins the White House and Democrats take control of the Senate while maintaining a majority in the House.
It remains to be seen if that scenario plays out, but some investors it could weigh on domestic equities, particularly growth names. However, an emerging consensus is that a blue wave would be beneficial to emerging markets assets.
Advisors can capitalize on that situation with model portfolios, including the WisdomTree Emerging Markets Multi-Factor Model Portfolio.
“This model portfolio is designed for investors with a long-term horizon looking for exposure to a broad universe of Emerging Market 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.”
The Right Post-Election Model Portfolio
Broadly speaking, emerging markets equities are flailing again this year, but emerging markets equities could be back in vogue if there’s regime change here in the U.S. come November and that could be an opportunity for advisors to add value with this asset class.
Under a blue wave scenario, “global relations improve, leading to general global growth and trade recovery,” according to WisdomTree research.
A Biden win on Election Day could lift emerging markets assets because it’s expected his tone toward China – the largest developing economy – will be far less bellicose than President Trump’s has been.
One thing to think about before EM investors decide to jump in is the uneven recovery. While China is leading the way after rebounding from the effects of Covid-19, some countries are left in the rearview mirror. That speaks to the advantages of a model portfolio because the aforementioned WisdomTree strategy not only features robust China exposure, but significant allocations to sectors and industries within developing economies are experiencing secular growth.
Additionally, this model portfolio represents an avenue for balancing what could be an indecisive U.S. dollar following Election Day.
“The path of the dollar is mixed, balancing weakness, given the widening deficit, and strength, given the more stable path forward for the economy,” notes WisdomTree.