Your Election Positioning Scorecard

With Election Day in the United States now underway, the prevailing notion is that the result is a coin toss and, thus, difficult to trade. By using the right data lenses, however, it is possible to augur what the future may hold for the market under either outcome. In the following, we will cut through the noise and provide a snapshot of how the Democrat and Republican election outcomes are currently positioned from a factor, macro, and thematic perspective.

To that end, we have compiled the forward-looking factor sensitivities of two portfolios that represent the policies of each political party. This scorecard provides a systematic approach to viewing the likely drivers of security returns over the next couple of months, depending on the results of the election.

All data is as of Nov. 1, 2024 and each number represents the annualized basis point move of long/short portfolios, built with companies likely to benefit or dis-benefit from a Democrat and Republican win, to the given factor or theme. Simply put, if the returns of any of these factors or themes were to move by one standard deviation, the indicated portfolio would make a corresponding move based on its sensitivity score.

Here are the results of the analysis, along with some notes and the methodology that was used.

‍Our groundbreaking thematic work isolates transient systemic risks that can complement traditional risk models. The Omega Point Thematic Package uses the Russell 3000 as the universe and aggregates dozens of thematic indexes into larger themes.

• Perhaps the biggest surprise is the Democrat portfolio’s materially higher sensitivity to the Onshoring theme. When drilling down to the security level, it becomes evident that the Democrat tilt is driven by Electric Vehicles (EVs) and Clean Energy Industrials. The Democrat portfolio is also short international telecom behemoths AT&T and Verizon.
• The Republican portfolio has a significantly higher sensitivity to the Innovation vs. Unprofitable Tech trend. While both portfolios favor AI, the Democrat portfolio leans heavily into the unprofitable Clean Energy & EV sectors.
• Investor Positioning reveals that institutional investors are slightly tilted towards a Republican win.

For the Macro analysis, we leveraged Quant Insight’s Macro Factor Sensitivities data as well as the Thematic Package.

• Inflation is a mixed bag, although it seems to be pointing higher with Democrat policy while the consensus is that higher rates are more likely with Republican Policy
• In terms of Rate Sensitivity, the Democrat names lean towards lower to neutral rates, while the Republican portfolio is skewed towards companies that will benefit from higher rates.
• The data suggests that Republican policies support higher Energy prices, likely due to the proposed implementation of import tariffs.
• Higher Economic Growth in the US seems to tilt towards Democrat Policy, while lower Corporate Credit yields appear to be favored in the event of a Republican win

Lastly, we have the predicted factor sensitivities from the three leading model providers, similar to those found in our weekly Factor Spotlight articles.

• Neither portfolio stands out as having significant sensitivity to long Crowding, while the Democrat portfolio skews towards names that have high Short Interest.

• Across the board, Democrats appear to be more aligned with companies that have higher Volatility and market Beta.

• Republican policy winners tend to be more aligned with Value and names with higher exposure to Earnings Yield. This dynamic is chiefly due to the Republican portfolio being long Banks and short Clean Energy and EV names.

It is undoubtedly a pivotal time for the market with the US election, FOMC interest rate decision, and peak earnings season all vying for our attention. Reach out to us today to learn how Omega Point can arm you with the data-driven insights you need to identify and manage the exposures in your own portfolio.

Methodology

‍To run this analysis, we created proxy portfolios that aggregate election indexes constructed and maintained by two of the foremost prime brokers.

• US Democrat Policy - A market neutral long/short portfolio that is long companies that will most benefit from Democrat policies and short companies that will dis-benefit from Democrat policies.
• US Republican Policy - A market neutral long/short portfolio that is long companies that will most benefit from Republican policies and is short companies that will dis-benefit from Republican policies.

We then observed the sensitivities inherent in each portfolio by using Omega Point’s multi-risk model view, along with the additional lenses of our partners’ content sets, thematic indexes, and our proprietary thematic work. To help you synthesize the data, we’ve aggregated the scores across multiple risk models and thematic indexes to help you understand the positioning across major themes and factors in the market. We thank our partners Axioma by SimCorp, MSCI Barra, Wolfe Research, Quant Insight, and the prime brokers for the data.