Cyclical Asset Changes After the 2020 Election

Polls say one thing, but one of the lessons from the 2016 presidential election is that anything can happen come Election Day. With that in mind, advisors should consider preparing for a variety of potential outcomes come Nov. 3 and model portfolios can aid in that preparation.

While there's growing consensus markets could be in for a blue wave – Democrats winning the presidency, a Senate majority and retaining control of the House – other outcomes are possible and the WisdomTree Core Equity Model Portfolio could prove useful against the backdrop of a surprise. The potential surprise being President Trump being reelected with the GOP maintaining control of the Senate.

“This model portfolio is designed for growth-oriented investors with a long-term horizon looking to maximize long-term potential for capital growth through a globally diversified set of equity ETFs,” according to WisdomTree.

2021 Predictions: A Cyclical Reversion

Under the aforementioned scenario, cyclical assets and sectors could benefit.

“The economic reopening should support a cyclical reversion in 2021, with small cap cyclicals benefiting from the pent-up demand created in 2020. Sector-wise, we see strong global growth benefiting cyclicals over defensive sectors,” according to WisdomTree research.

The WisdomTree Core Equity Model Portfolio holds 11 exchange traded funds, six of which focus on domestic equities.

One of the components in the model portfolio is the WisdomTree Earnings 500 Fund (NYSEArca: EPS), a smart beta alternative to cap-weighted domestic large-cap equity strategies, could be an alternatively-weighted strategy for investors to consider when markets steady and volatility abates.

EPS YTD Performance

EPS targets an earnings-weighted index that screen for positive cumulative earnings over their most recent four fiscal quarter period and assigns weights to components to reflect the proportionate share of the aggregate learning’s each company generated, so those with greater earnings have larger weights. That gives the fund value and quality tilts.

Although it's a broad market fund, is a credible avenue for capitalizing on the possibility of Post-Election Day strength in cyclical sectors. The $425 million EPS allocates nearly a quarter of its weight to financial services and consumer discretionary names and those are two of the most cyclical sectors.

For more on how to implement model portfolios, visit our Model Portfolio Channel.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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