Trump appointees will impact UK stocks

In his post-election update on tactical asset allocation in Alpha multi-asset portfolios the previous month, my colleague James Norrington noted that the underlying model is based on a “rules-based defensive impulse,” which means human biases and heuristics are removed from equations But after the election results, these aspects of the world of behavioral finance have certainly become apparent.

President-elect Donald Trump wasted no time introducing potential Cabinet appointees, one of whom could force a rethink about portfolio allocation, although not in the way media reports have us believe.

Pending Senate approval, Robert Kennedy Jr. will be appointed to lead three US health agencies – the CDC, FDA and NIH – a move that is guaranteed to energize the Washington lobbying networks that support the US food and pharmaceutical industries on Capitol Hill.

Kennedy was an outspoken critic of the US industrial food system and the dangers it posed to public health. But it is his objections to certain aspects of the US health care system, most notably his criticism of vaccines, that will be used as a cudgel to crush his candidacy.

The former independent presidential candidate stressed that large pharmaceutical companies are among the heaviest fines and criminal prosecutions in the United States. Of course, they are also among the most lucrative, which is another reason it’s hard to imagine Kennedy’s candidacy getting a free pass through Congress. He may fail in the face of a metropolitan lobbying ecosystem that is as vast as it is opaque; Washington is a city interested in promoting vested interests.

Shares of European pharmaceutical companies, including GSK (GSK), Sanofi (FR:SAN) And Roche (CH:ROG)fell markedly following news of the appointment, joining US vaccine developers such as Moderna (USA:MRNA), Pfizer (US: PFE) And Novavax (US: NVAX). But it’s easy to get caught up in the hype. Even if the appointment is approved, Kennedy will face a Sisyphean task, at least with regard to the pharmaceutical industry, which is made even more difficult by the quagmire of the US legal system.

Kennedy’s separate criticism of the US food system is consistent with growing consumer opposition to ultra-processed foods (UPF) and their links to diseases including cancer and type 2 diabetes. This trend is also observed on this side of the Atlantic. In a recent survey by the Food Standards Agency, 77 percent of respondents indicated they were concerned about UPF, second only to food prices.

Meanwhile, PitchBook research shows demand for specialty ingredients tripled between 2015 and 2022. This trend creates not only opportunities, but also some obstacles for agribusiness companies involved in the supply of nutritional supplements, such as Archer Daniels Midland (USA:ADM) and, closer to home, Tate and Lyle (TATE).

Last week the latter group completed its acquisition of CP Kelco, a US producer of “natural” specialty ingredients, for $1.8bn (£1.4bn). This move was taken in direct response to changing consumer demand. News of the deal initially triggered a fall in share prices due to concerns that the financial benefits of the combination would be outweighed by the impact on Tate & Lyle’s balance sheet (deferred consideration of up to 10 million additional Tate & Lyle shares will be issued to counterparty JM Huber two years after completion). Target operating cost synergies of $50 million are for a net debt to Ebitda ratio of approximately 2.3 times, slightly below the high end of the target range.

The stock then gained momentum in October after FT reported that the US-based company Advent International is preparing an application to participate in the group. Advent has taken some shape in its interest in UK business with the acquisition of defense group Cobham in early 2020. Regardless of whether an offer ultimately comes through, there is speculation that this segment of the food market is attracting increased interest. It is therefore possible that a manufacturer of natural extracts and ingredients such as Tritt (TET) may attract interest from larger market players seeking to expand their product offerings.