Stock market professional Gottfried Heller on the conciliatory arrival of Joe Biden – and how the new president could drive the economy and share prices. By Wolfgang Ehrensberger, Euro on Sunday
The fund manager, asset manager and author Gottfried Heller is an accomplished USA expert. In 1963, at the age of 28, the newly qualified engineer emigrated to the USA. In New York he not only met his wife Margaret, but also got involved in 1968 as an election worker for the later murdered presidential candidate Robert Kennedy in the New York borough of Bronx. In 1969 Heller returned to Munich and founded the asset management company Fiduka in 1971 with stock exchange legend André Kostolany. The now 85-year-old reported with horror that he watched the storming of the Capitol by Trump supporters: “Trump has shown the world once again which mob he has mobilized.”
€ uro on Sunday: You also watched Joe Biden’s swearing-in – what was your impression?
Gottfried Heller: It was a worthy introduction, and despite all precautionary measures, it was relaxed and cheerful. The speech was very focused on unity and cohesion. He wants to mend the cracks, and he can do it. Even as a senator, he was known for being able to get Republicans on board with legislative proposals “across the corridor”.
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The US stock exchanges accompanied the inauguration with a fireworks display and new records. How long will the soaring lasts on Wall Street?
The soaring of the US stock exchanges will definitely continue. Biden will ensure that with the $ 1.9 trillion economic stimulus program alone. And statistically, when the President and Congress were in Democratic hands, like today, the return on stocks was two to three percent higher than when Republicans were in power.
Biden’s predecessor divided the country. How will Biden deal with this inheritance?
Biden served in the Senate for 36 years and then served as Vice President under President Barack Obama for eight years. Indeed, I think he is best suited to smooth the turmoil in American society. In addition, thanks to the majority in Congress, he is fortunate that he can get his nominations for his cabinet or other posts through without major problems.
You mentioned the $ 1.9 trillion stimulus package. What can he achieve and which industries will benefit?
I think Biden will get the majority of the $ 1.9 trillion measures he proposed through. That should give the US economy, which has recently weakened again, a strong boost – and thus especially the cyclical equity sector. Value stocks and small caps are therefore my favorites for 2021 in the USA too.
Some industries’ share prices have already benefited greatly from the Biden prospect. What leeway is there?
Biden and his advisors have clearly stated where they want to pull the lever first: in climate policy, in infrastructure spending and in health care. These areas will see a sustained growth spurt and stocks will continue to benefit despite the gains.
Biden is also considered a beacon of hope in the cannabis industry. Are golden times dawning for listed companies in the industry?
The new US administration will push ahead with the legalization of cannabis and thus give the Canadian marijuana industry in particular a growth perspective. However, I don’t think that will be the new government’s top priority.
In the trade conflict with China, the new president will maintain the tough course of his predecessor. What are the consequences for Europeans?
Biden will definitely bring Europe on board in this fight. This will be a difficult balancing act for Germany as an export nation, as China is one of its largest trading partners. It takes a good deal of diplomacy, especially from Biden, but also from the Europeans, to keep China in check geopolitically and technologically without affecting the world economy too much.
Back to Germany. Here the corona restrictions have just been extended and tightened again. How much is that burdening the German economy?
I expect the majority of the population to be vaccinated in the first half of 2021. Then the restrictions could be relaxed and the economy could take off strongly, also because of the catch-up effects in consumption and investment.
A sustained upswing could then begin in the second half of the year?
I assume that the global economy started a new business cycle by mid-2020. And that will push the stock markets for a long time to come. Never before have there been such massive cash injections from the central banks and never before such immense economic aid from governments.
How do you assess the risk of overheating or crashes?
I believe we won’t see the negative effects until much later, in fact, possibly in an overheating of the economy or a resurgence in inflation. That will also put a strain on the stock exchanges. In the near future, I see the risk of crashes or sharp falls in prices, at most, in individual industries that have now achieved dizzying ratings, but not in the overall market.
What do you advise investors?
At the beginning of an upswing, the sectors that have suffered the most during the recession, i.e. the cyclical sectors, always benefit the most. Their profits are rising above average, and many are leaving the red. This development will now be even more pronounced than it was after previous economic turns. Mainly because the slump in profits was even greater and the earnings leverage in the upswing is even greater, also because of the austerity programs that have been initiated.
Which industries do you mean specifically?
Again, my advice here is to shift the focus to value stocks and small caps, from chemistry to consumption, engineering and transportation to commodities and financials. And, geographically, stocks from emerging markets are always particularly interesting when the economy turns around.
And tourism, trade, aviation?
These particularly battered industries will also rebound, some maybe strong, but investors should be careful here. After life has normalized, the growth potential in these sectors is limited for the time being – and thus also for stocks from these areas.
Fiduka Pro Select World Fund
The mixed fund is based on an investment strategy developed by Gottfried Heller based on scientific knowledge. It is mainly implemented with the help of exchange-traded index funds. The portfolio includes valuable, dividend-paying value stocks, small caps, emerging market stocks and bonds. The aim is to achieve above-average long-term returns with limited risk through global diversification. Small caps are currently the most heavily weighted in the fund.
BGF US Flexible Equity
Value stocks are celebrating their comeback, but after years of drought, some investors do not trust the roast. For this Blackrock fund, manager Todd Burnside invests in stocks that have either growth or value characteristics, with a focus on current market prospects. Therefore, his portfolio contains tech stocks, but also cyclicals from the industrial and consumer sectors.
Small caps, small companies with a small market capitalization, are considered riskier and more susceptible to price fluctuations than the giant blue-chip corporations. In return, however, they often offer disproportionate price increases. The risk can be reduced through diversification. This ETF, which tracks the development of around 2000 US small-cap companies included in the Russell 2000 Index, does this in an exemplary manner. The largest position, the casino operator Penn National Gaming, has a weight of just half a percent. Promising.