Insider Q&A: Yes, politics influences markets. No, you may not be able to benefit from this | News, sports, jobs

Rich Weiss, Chief Investment Officer, Multi-Asset Strategies, American Century Investments

NEW YORK (`) — Every election year, investors rush to bet in financial markets on what they think will happen. Washington's policies ultimately have a big impact on the economy, from corporate tax rates to subsidies for certain industries.

But hoping to capitalize on such hunches may be more foolish than expecting partisans to stop demonizing each other. That's according to Rich Weiss, who leads the team that manages retirement funds and other investments that hold a mix of different assets for American Century Investments.

He recently spoke to The Associated Press about how difficult it is to profit from political bets in the markets. The conversation has been edited for clarity and length.

Q: With every election, investors consider changes to protect themselves from upcoming surprises or to capitalize on expected political changes. Why is this a bad idea?

A: Betting on elections is the equivalent of trying to get a hat-trick in the horse race where you get the horses in first, second and third place, which is really, really difficult to achieve. It is a combination bet.

You make three independent bets. You have to be right about who wins the election, you have to pick the winner. Apart from that, your choice must also be better than the market's choice. The market is already discounting the probability of who will win. So if you pick the winner and the market has already done so, there is no return. It's a waste for you

And finally, who's to say that it's going to have an economic impact when it comes to getting bills passed through Congress or changing tax rates, because that's not always how it happens. These are three different bets that you make. It's almost impossible to hit them all and it's just not worth it.

Q: Does everyone you invest in believe this?

A: Every four years, clients ask us the same thing: How do we position ourselves leading up to an election? Our answer is: We do not manage our investment portfolios accordingly. We prefer to rely on sound economic and financial variables rather than the whims of politics.

There is no connection between election cycles and the markets, at least not one that one should bet on with statistical significance.

Q: But surely politics has an impact on the economy?

A; It's clear that presidents get into the White House or Congress gets a party majority, and they're going to do things on defense spending, on health care, on green energy spending that affect certain industries or companies.

They will have an impact on the economy and markets. All I'm saying is that you shouldn't bet on it in advance. It's not a winnable bet.

Q: How about waiting until closer to the election when the proposed measures come into clearer focus?

A: This is not a secret that only you know as the election approaches. It's kind of out there.

Q: Are markets generally more volatile leading up to elections?

That's not necessarily the case. This year it is very possible for several reasons. Firstly, the extent of political uncertainty, not just in the USA but around the globe.

Here too, the stock market may have priced in a lot of good news. So it's kind of a ride in search of a bruise, if you will. The market has definitely assumed that earnings will come at healthy levels and that inflation and interest rates will decline.

Q: What about the idea that there is so much more at stake in this election than in previous elections, as if even the future of democracy was at stake?

A: This is a political question. Depending on which channel you're watching, MSNBC or Fox, you'll see both sides of this. We'll just stay away from that.

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