Here’s what Wall Street money managers are doing to prepare their portfolios for their 3 biggest election concerns

Kamala Harris and Donald Trump.

With just a few weeks until Election Day, the presidential race is neck and neck between Kamala Harris and Donald Trump.

There’s a lot at stake in November. Policy initiatives could have a significant impact on the economy, especially on issues concerning inflation, the housing market, employment, and international trade.

The $1.3 trillion asset manager PGIM surveyed 400 institutional investors collectively overseeing $9 trillion in assets under management about the election. Most investors surveyed agreed that elections influenced how they allocated funds in their portfolios.

Overall, 46% of the investors surveyed said that a Republican sweep across the White House and Congress would be the optimal outcome for the market. 29% of investors preferred split control of the White House and Congress. Investors can benefit from both parties: Republicans would likely pass investor-friendly tax and energy policy, while Democrats would pass more favorable US-China and trade policy.

Here’s what Wall Street is worried about this election cycle and how top money managers are preparing their portfolios for November.

Wall Street’s 3 biggest election concerns

There was one clear standout issue: the national debt. 35% of institutional managers flagged the US national debt as the most important policy change they wanted to see.

Kara Murphy, chief investment officer at Kestra Investment Management, says the deficit will continue to balloon from its current level of $35 trillion as higher Medicare, Social Security, and interest expenses stack up.

However, neither candidate has put forward a concrete plan to address this issue.

“The candidates’ relative silence on the deficit shows that it’s an American problem – not just a party problem – and one so big and intractable that the next president isn’t likely to be able to make much of a near-term impact,” Murphy wrote in a note.

Seventeen percent of investors responded that fueling economic growth was their biggest concern. There are both domestic and international challenges to the health of the economy, with institutional managers flagging issues such as inflation, US-China relations, and tariffs.

It’s likely that the next administration will implement new tariffs, regardless of which party takes the White House, according to PGIM.

While Trump is well-known for his love of tariffs, Harris isn’t exactly anti-tariff either. Murphy points out the Biden-Harris administration has kept many of the tariffs that Trump passed during his presidency, and even enacted additional tariffs.

Increased trade tensions could have negative implications for both US and international markets in China, Latin America, and Southeast Asia. Tariffs often have inflationary effects by slowing down trade and raising prices for consumers. The results of the presidential election will clarify how many new tariffs to expect.

The third biggest concern was immigration reform, with 15% of investors placing it as their most important policy concern. Investment advisor Research Affiliates sees an urgent need for immigration reform as the US population growth rate continues to decline, harming the labor market. According to Research Affiliates, policies such as removing the cap on green cards for immigrants with higher education degrees in STEM fields could solve this issue.

Preparing your portfolio

The tight race makes it unlikely for a single party to hold a sweeping majority in the House and Senate and pass drastic policy changes. However, the election winner still has implications for portfolios.

One survey respondent, a portfolio manager for a US-based pension fund, said elections have “been a big factor” when it comes to allocating money. A Republican president is likely to benefit the oil and gas industries, while a Democrat win will boost healthcare, the portfolio manager said.

An investment director for another pension fund shared the following investment outlook regarding the ongoing decline in globalization and trade relations: “Given reshoring, friend-shoring, [and] less reliance on the likes of China and other trading partners from past decades, we’ve felt even more confident in some of our exposures, particularly within the US. Basic industry, materials, very middle-market and lower focused, but dedicated US exposure such that if we really continue along this deglobalization path, and if there are further and future rifts, these are the areas that are going to benefit the most.”

As international supply chains experience disruption and technological competition with other countries increases, investors should put money into the companies and sectors benefiting from deglobalization while also adding safe-haven assets to their portfolios. The trend of reshoring will lead to increased domestic construction and jobs.

PGIM recommends gold, Treasurys, and the US dollar as examples of stable, low-risk assets.