Contrary to industry peers, Brian Singer, partner and co-portfolio manager of the William Blair Macro Allocation Fund, was not shocked when the developed world was washed over by a wave of populism in 2016. During an interview with Citywire, Singer describes the significance of populism, potential signals for the rise of populist movements, and how the market is responding to President Donald Trump.
“Populism is an important theme because a populous stands for nothing. Populous stands against something, and it’s very hard for the markets to incorporate a rejection that occurs in the political sphere,” Singer told Citywire. “But that influences asset prices, and because of that, we actually build that into our understanding of elections.”
Singer explained that it’s more important to focus on what type of environment is conducive to populism rather than specific triggers. For example, in developed countries, conditions that have given rise to populism include slow growth, prolonged austerity, and little to no income gains at the bottom of the scale.
Though Singer and his team did not predict President Trump’s win, they “had a much higher probability of a Trump win than was priced into the market,” he said in the interview. Given this analysis, for example, he reduced exposure to the Mexican peso ahead of the election result.
But as Trump’s actions fell short of the campaign rhetoric, the team increased its peso exposure in December 2016 and again in early 2017.
In developed countries, conditions that have given rise to populism include slow growth, prolonged austerity, and little to no income gains at the bottom of the scale.
In the interview, Singer said he was surprised that the markets have developed immunity to political risk, citing the market’s seemingly mild reactions following Brexit and President Trump’s victory.
He noted that the low volatility could be unrelated to geopolitical risks. Several other factors are dampening volatility, including quantitative easing by central banks, the rise of rules-based index investing, and a global search for income, which are encouraging investors to seek out alternative instruments.
“We are now at a level of market exposure that we would say is about average,” said Singer about the William Blair Macro Allocation Fund. “We have begun to slowly increase currency risk. That has been going on for the past three or four months and we haven’t brought it up quite as much.”
The strategy is avoiding safe havens such as Germany and Japan and is “cautiously exposed” to the United States since “momentum may last longer than many think, thanks to the same factors that are keeping volatility low,” he told Citywire. “Attractive markets are those that are the most uncertain.”
Singer highlighted that he currently finds some European equities attractive, including the United Kingdom, Italy, and Spain, as well as emerging markets, such as China, India, Russia, and Argentina.
He mentioned in the interview that emerging markets are shifting away from populism while the developed world seems to be embracing the trend.
He concluded, “In countries like Brazil and Argentina social institutions are improving – things like rule of law, property rights, and labor flexibility. But in the developed world those institutions are deteriorating. What that means for us is that fundamental value goes up where there is a move to strengthening these institutions, so we’ve leaned toward emerging markets relative to developed for a number of years now.”