The $TRUMP token rose from around $7 on 18 January to a high of nearly $75 a day later before falling back quite sharply.

Following the sudden increase in value of the tokens, there are concerns it could provide a springboard for other celebrities to launch their own cryptocurrencies. As we have highlighted previously, investors would be right to be wary, with plenty of examples of such investments going into the red soon after an initial boom in price.

It is not just the risk of a fast fall in value that UK investors should be mindful of. The temptation to jump into crypto transactions, in particular newly launched coins, can make the tracking and reporting of such investments difficult. However, any taxpayers seeking sympathy from HMRC are likely to be given short shrift should they claim difficulty in assessing their tax position.

HMRC’s view is likely to be that if a taxpayer chooses to invest in cryptocurrencies, then they are doing so in the knowledge that this can be a complex area, and they should be taking reasonable steps to make sure any associated tax liability is declared and paid.

Taking its cue from the government, we could see HMRC take an even firmer stance with taxpayers as they seek to recover more funds for the Treasury. The current 2024/25 tax year will be the first in which taxpayers have to declare crypto disposals separately on their tax returns and many more taxpayers will be required to report their crypto transactions to HMRC for the current tax year.

Most cryptocurrency transactions undertaken by UK taxpayers are subject to capital gains tax (CGT), rather than income tax. In the past, the majority of UK individuals investing into cryptocurrencies will not have had to declare their transactions to HMRC provided any capital gains were lower than the CGT annual exemption.

The CGT annual exemption has fallen dramatically following changes announced in 2022, from £12,300 per year for individuals to just £3,000. With the Financial Conduct Authority estimating that 12% of the UK’s adult population now own some form of cryptocurrency, we could see a surge in individuals having to report and pay CGT.

That could mean more individuals registering for self-assessment, placing a heavier burden on HMRC resources for relatively low levels of tax. There is however a different route that some may choose to explore, using HMRC’s ‘real time’ CGT service, but advisers cannot use this service. Gains made in the current tax year will need to be reported by 31 December 2025 and the associated tax must be paid by 31 January 2026.

The days of crypto investors relying on the safety net of the CGT annual exemption are largely over and many will be met with a hard landing if they do not keep detailed records as they go along.

Four years ago, I went to bed assuming that she would win [admittedly as I did with the Brexit vote, which clearly demonstrates why I am not a political pundit].

I woke up at 3am and checked the results, then spent the next hour trying to do electoral college algebra to figure out how she might still win.

It was not fun.

This time, I stayed up. And I made it until 3am before losing the will to live.

Diabolical coverage on the BBC and ITV forced me to turn to CNN, where the presenters proceeded to throw so many statistics at me that I thought I was watching the Grand National.

I sit here now, after three hours of sleep and a lot of caffeine, deeply frustrated that the process is so complicated.

And I am 100% not alone. Misery does, after all, love company.

Reaction?

While journalists have the unenviable task of writing up breaking developments, which invariably means articles are out of date within hours, the financial services industry has to formulate a response to, or offer an opinion on, an as-of-yet non-event.

With Trump already declaring victory – to the horror of many within his own party – and threatening court action… this (to borrow a Biden phrase) “malarkey” is unlikely to be over any time soon.

Below is a roundup of some of the latest views of where this day [week… month…?] may take us.

Don’t invest in pollsters

Simon King, chief investment officer of Vermeer Partners: “This is tricky from a markets point of view, some may call it the nightmare scenario: indecisive, dangerous and divisive.

“We won’t see anything conclusive soon. Trump will dig his heels in and it will run and run, and as we know from past experience not in any orderly manner. This uncertainty will hurt the markets for sure; but should the bookies be right, and the White House stay red, then we’d expect a positive stock market response in the midterm, with healthcare a likely star of the show.

“Frankly, I wouldn’t be investing in any political polling companies anytime soon – I doubt anyone will be paying much attention to those again.”

An unpalatable cocktail

Randeep Somel, equities fund manager, M&G Investments: “A second-term for president Donald Trump is looking like a possibility in what has so far been a poor showing for the pollsters, who had Joe Biden up strongly in key swing states coming into the Election.

“Trump has significantly outperformed expectations, managing to hold Florida and Texas and looking increasingly confident of victory in key battlegrounds. So far, Trump’s confidence of victory is being reflected in the markets, with value stocks such as oil up in futures trading and a rally in the dollar likely if Trump holds out.

“This could change as absentee ballots are a big factor in this election which has not been the case in previous elections.

“At this stage a continuation of the status quo is likely – a Trump presidency, a Republican Senate and a Democrat House. However, absentee ballots could still favour the Democrats. This will have implications for US fiscal expansion, which would be far larger in the case of a Democrat clean sweep, given the $2trn (£1.5trn, €1.7trn) stimulus package that has been on the table.

“However, we still expect some form of fiscal stimulus irrespective of who wins the White House, as both parties put electoral manoeuvring to one side and focus on building back the US economy.”

Healthy dose of patience

Paul Eitelman, senior investment strategist, Russell Investments: “The election outcome still looks very uncertain. Futures are mixed across all regions. A more probable consequence for markets is the Senate outcome and this hangs in the balance.

“A Republican senate majority reduces the likely amount of fiscal stimulus in early 2021. The large rally in the US 10-year highlights the risks investors are seeing around stimulus.

“It looks like we will all need a healthy dose of patience this week, as results continue to roll in. A protracted period with no known result could inject volatility into financial markets. What we do know is that the U.S. and global economy are both still in the early innings of a new cyclical expansion.

“Politics offers plenty of surprises, but there are some very powerful economic forces already at work that don’t care at all about who is in the White House.”

Digesting the situation

Richard Carter, head of fixed income research, Quilter Cheviot: “Once again, the polls have underestimated the depth of support for Trump and it is possible he may well end up as the winner.

“In the short term, this is disappointing for markets and raises the prospect of several days or even weeks of uncertainty and possible legal challenges. Investors had been also been hoping that a clear victory would open the door to a massive stimulus package which would boost the US economy.

“This now appears unlikely, at least in the short-term, so we would expect to see some volatility today as markets digest the situation.

“The good news is that central banks will continue to provide large amount of supports through QE and low interest rates and this should reassure investors as we wait for news from Washington.”

Our sister publication Portfolio Adviser has already reported Blackrock and Vanguard are among the largest shareholders in General Dynamics, while Natixis and Pyrford have high conviction positions in the contractor, which has been linked to Donald Trump’s child separation policy.

Natixis Vaughan Nelson US Select Equity, which is Luxembourg domiciled, has increased its allocation to the company since June from 4.5% to 5%. The French asset manager would not comment on its increased allocation.

However, as the US president arrives in the UK for the first time during his presidency, further figures from Morningstar Direct reveal just how exposed UK-domiciled funds are to Trump’s zero-tolerance immigration policies.

In total $635.4m is held in General Dynamics in UK-domiciled funds.

US funds

SJP holds 2.6% via its £211.9m North American fund. Neptune also had substantial exposure in its US Opportunities, Quarterly Income, US Income, Global Income and Global Alpha funds based on data from the end of 2017.

The company said now only the £243.9m US Opportunities, run by Ali Unwin, and £33.3m US Income funds, run by George Boyd-Bowman, have exposure and this has been reduced to a “very small exposure” of 2.17% and 1.68% respectively.

SLI North American holds 1.7%.

General Dynamics provides technical and administrative assistance for the processing of immigrants. Defence secretary Jim Mattis served on the board between 2013 and 2017 but stepped down to join the Trump administration.

Prison operators

UK-domiciled funds also have exposure to private prison operators The Geo Group and CoreCivic, which have contracts connected to the detention of immigrants.

The Geo Group runs 11 immigration centres and made political contributions to Trump. According to filings made to the US Senate and House of Representatives, the company has lobbied Washington on the operation and management of prison and detention facilities.

Aviva Investors has the highest conviction stakes in the company via its US Equity Income and US Equity Income II funds, which hold 1.34% and 1.6% respectively. The £870.4m Artemis Monthly Distribution fund, run by Jacob de Tusch-Lec and James Foster, holds a 0.53% stake.

In total, UK-domiciled funds hold $19.5m in the company.

CoreCivic runs eight immigration detention centres. The company is held by 20 UK-domiciled funds via minority stakes, averaging a couple of basis points each. The holdings collectively represent $2.8m.

ESG justification

SJP and Aviva Investors said the funds exposed were sub-advised mandates run by third parties in the US. They therefore would not comment on the portfolio holdings.

The SJP North American fund is run by Aristotle Capital Management and the Aviva funds are run by River Road Asset Management.

Artemis did not respond to our sister publication Portfolio Adviser’s request for comment.

However, a spokesperson from Aberdeen Standard Investments responded: “As active investors, it is our policy to engage with investee companies on material ESG issues.”

For more insight on UK wealth management, please visit www.portfolio-adviser.com

The wealth manager did not anticipate that the US dollar would appreciate by 3.3% since the start of the year, a move that has hit client investments in emerging market currencies, equities and sovereign bonds.

“The biggest change in our tactical positions would be taking off the overweights that we had in currencies outside of the dollar,” Haefele said, adding that these positions are now neutral.

Additionally, the overweight in emerging market equities was taken down to neutral.

State Street Global Advisors and Eastspring Investments have also recently taken note of the appreciation of the US dollar and have made changes in their tactical asset allocations.

Hedging global growth

For client portfolios, the bank continues to prefer global equities over high grade bonds on the back of global growth and strong company earnings, he said. For tactical global equity exposure, the firm weighs allocations relative to the MSCI AC World Total Return Index.

However, some hedges have been added amid rising volatility in the market as well as increasing interest rates.

For example, it has added an S&P 500 put in its tactical allocation this year. “We thought it was prudent to give up some of the future returns and try to put a little bit of flooring if we really get a sell off,” Haefele said.

“Because with the great run of markets last year together with the diverging political views in the United States and the tightening of global liquidity, we thought that the range of outcomes for the global economy is much wider, so we wanted to have some protection there.”

Besides its put on the S&P 500, the bank has also allocated around 14%-18% to hedge funds. UBS Wealth is one of the private banks that recommends clients allocate to hedge funds as a diversifier.

“We note that hedge funds tend to perform well in a rising rate environment, and they did so at the beginning of the first half of this year,” Haefele said.

As of the end of May, the HFRI Fund Weighted Composite Index returned 1.41%, versus S&P 500’s 2.02% and Bloomberg Barlcays Global Aggregate’s -1.02%, according to data from FE Analytics.

Still positive on Asia

Echoing Haefele, Tan Min Lan, Singapore-based Asia Pacific head of the firm’s chief investment office, said that the strengthening of the US dollar could negatively affect Asia assets.

“If the dollar were to rise sharply from here, it could be a drag on Asian assets,” she said during the media briefing. However, she believes that it is a “very manageable risk”.

“So long as earnings are stable and valuations are moderate, Asian assets can actually continue to perform.”

For the full year 2017, the MSCI Emerging Markets Index was up about 38%. Year-to-date, there’s been a sell-off. The same index is down (-6.5%), but the MSCI All Country Asia ex-Japan Index had less of a loss (-4.1%).

Tan expects Asia company earnings to increase by 12% this year. She added that balance sheets are generally healthy and most companies have positive cash flow. Within the region, she likes China and Singapore.

“We see the most upside in the Chinese equity markets. In China, industrial profits are up 15% this year,” she said. 

Audio and video of distressed children caged in large warehouses has attracted international condemnation, prompting Trump to scrap the policy on Wednesday.

The running of the camps was passed to defence companies.

While many of these companies are private, New York-listed General Dynamics has been tasked with supplying case-management services for kids being released from temporary shelters, according to Reuters.

Vanguard and Blackrock are among the asset managers most exposed to General Dynamics, while Natixis and Pyrford funds available to UK investors take high conviction stakes on the active side.

Natixis and Pyrford

Our sister publication Portfolio Adviser could not find any funds in the Investment Association sectors or investment trusts registered with the Association of Investment Companies that held the stock in their top 10.

However, Natixis Vaughan Nelson US Select Equity, domiciled in Luxembourg, holds 4.5%, while three Pyrford Global Equity funds, domiciled in Ireland, hold more than 2%, including the sterling version of the strategy, according to FE Analytics.

The funds are Financial Conduct Authority registered and available to UK investors.

Natixis and Pyrford have refused to comment on their exposure through the offshore funds.

Private prison companies Geo Group and CoreCivic are also implicated in running the camps, but Portfolio Adviser could find no funds available to UK retail investors with exposure to the listed businesses.

Tracker funds

However, when it comes to total exposure, Vanguard and Blackrock are among the five largest shareholders in the defence company, according to the 2018 General Dynamics Proxy Statement published in March.

The former held 6.9% while the latter holds 5.6% as of 31 December 2017.

“No comment,” said Vanguard when approached by Portfolio Adviser.

A Blackrock spokesperson responded that virtually all holdings were via passive products.

“Index providers determine which companies to include in the indices they create. As a fiduciary, Blackrock then offers clients funds, like ETFs, that are designed to track the investment results of those third party indices.”

The iShares US Aerospace & Defense ETF is among the international funds with the largest exposure to General Dynamics, holding 5.97%.

Longview Asset Management, a private investment management firm linked to the founding family behind General Dynamics, the Crowns, is the largest shareholder with an 11% stake.

Capital Research Global Investors, which offers a range of Sicav funds for European investors, is also a significant shareholder with 6.1%.

While some shareholders have been sheepish about their exposure, the GOP Point Bridge Stock Trader ETF holds General Dynamics as part of its pro-Trump mandate.

Known as the Maga (Make America Great Again) ETF, due to its ticker, the tracker fund selects the top 150 Republican stocks from the S&P 500 based on political contributions by the company and employees during the previous two election cycles.

Ethical exposure

7IM investment manager Camilla Ritchie said General Dynamics was unlikely to feature in sustainable funds as it makes weapon systems.

Defence index trackers are among funds with the highest exposure to General Dynamics.

The Natixis and Pyrford funds are not run to an ethical mandate.

An analysis of international funds showed 1,946 have exposure to General Dynamics, ranging from a couple of basis points to 17.39% in the $64.8m Barrett Opportunities fund, domiciled in the US, according to Morningstar. The Natixis Vaughan Nelson US Select Equity fund ranks 17th for exposure to the company.