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The 2020 election underscored that the nation remains divided politically, economically, and culturally. After record numbers of voters turned out to express their visions for the future, what should unite all of us is the shared belief in the power of American democracy.

I waited for an hour on a rain-slicked Manhattan street to cast my first ballot for president since becoming a U.S. citizen. It was a powerful moment. There was a strong feeling of community, as well as the awesome weight of civic duty. This energy was visible among volunteers and voters at my voting place.

Now comes the hard work of moving forward. Democratic nominee Joe Biden has won the White House, though legal challenges, recounts, and run-off elections will continue. While these events carry some uncertainty, it’s time to consider what the election outcomes might mean for investors.

Keep an eye on investing for the long term

The most important takeaway for investors is to keep focusing on the long term. While the snap verdict in financial markets was optimism, and the S&P 500 delivered its biggest weekly advance  in nearly seven months, the prospect of a divided Congress means uncertainty remains about the timing and size of additional fiscal stimulus to prevent permanent economic damage from the virus shock.1 At the same time, Democrats’ ability to implement legislative priorities, including overhauls of tax policies and healthcare, look constrained, according to the BlackRock Investment Institute (BII).

Of course investors must grapple with the implications of rising COVID-19 cases, but also embrace the possibility that an effective vaccine may be on the horizon.2 And the BII sees policy interest rates staying ultra-low for the foreseeable future, which means the search for yield for many investors will remain a challenge.

Historically, the political party controlling the White House and the different Congressional configurations have had little bearing on the long-term performance of U.S. stocks. The power of compounding returns means that for the long-term investor, a focus on managing volatility and simply remaining invested may prove more powerful than reactions to a given administration.

The election: stocks have continued higher regardless of presidential party

bar chart representing increase in stocks regardless of presidential party

Source: Morningstar as of 6/30/20. Stock market represented by the S&P 500 Index from 1/1/70 to 6/30/20 and IA SBBI U.S. large cap stocks index from 1/1/26 to 1/1/70. Past performance does not guarantee or indicate future results. Index performance is for illustrative purposes only. Indexes are unmanaged and one cannot invest directly in an index.

Opportunities for ETF investors and long-term portfolios

Elections offer investors a chance to consider if their investments are well-suited to meet their long-term goals. iShares exchange traded funds (ETFs) can help all types of investors to rebalance portfolios and reposition for the most salient long-term investment opportunities. Our ETFs offer low-cost, convenient ways to access both broad markets and narrower strategies in a tax-efficient way.

As an example, ETFs can help investors seeking targeted access to global efforts to create and approve a COVID-19 vaccine. Recently, the spotlight has been on innovations in immunotherapy and genomics, and the rollout of a vaccine globally could bring forward market expectations of inflation and change equity market leadership to cyclical stocks — those most closely tied to broad economic growth. A post-COVID world would likely shift investor attention to “value” stocks with lower valuations based on fundamentals. Value investing has been something of an afterthought in recent years due to the strong performance of “growth” companies, particularly in the technology sector, but shares of companies that are discounted by the marketplace historically perform well during economic recoveries as investors reprice improved growth prospects.3

ETFs can help investors to seek to find growth from overseas markets. President-elect Biden is likely to return to more predictable foreign and trade policies, which could benefit export-focused economies including emerging markets. And while the U.S.-China rivalry is likely to remain structurally elevated, the epicenters for technological innovation are shifting beyond only the U.S. Such trends should ensure that broad-based international equities will play an increasingly critical role in portfolios in the future.

The long-term trend that climate risk is investment risk will continue to be timely for ETF investors in 2021 and beyond. Climate policy will likely be a major focus of the Biden administration through regulatory actions, and the president-elect committed to rejoining the Paris Agreement global accord on climate change. Globally, spending on renewable energy infrastructure is likely to grow. Equity investors seeking to capture these megatrends, or sustainable themes like renewable energy, may seek a diversified approach to targeting these themes in their portfolios, rather than relying on a broad market approach.

Finally, the Biden administration could potentially bring more strenuous anti-trust reviews around issues such as wages and platform power; while manageable, mega-cap tech companies are likely to face greater regulatory scrutiny. ETF investors might reconcile such regulatory headwinds in big tech by targeting small- and mid-sized companies with exposure to services that enable working, shopping, and learning from home. Absent a vaccine and large-scale fiscal stimulus, shares of such companies should be well-positioned to deliver potential revenue growth.

Conclusion

The 2020 election has illustrated first and foremost that American democracy is strong even if the nation remains divided about its vision for the future.

Just as I felt a surge in optimism when I voted for the first time, and I’m optimistic there will be new opportunities for investors across financial markets. For ETF investors, the election is a chance to reevaluate portfolios to make sure that holdings are in sync with the pace of change.

Armando Senra
Head of iShares Americas, BlackRock
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