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Reality-based investing is key under Trump

To make money in the Trump era, it pays to practise what you might call “reality-based investing”.

Regardless of how the new president chooses to present events, Donald Trump’s administration still has to operate within legal, political and geopolitical constraints. Successful investors will be those who focus on the legislative and regulatory minutiae and on the realities of creating legislation on Capitol Hill.

Trading in the bonds of US hospital operators is a case in point. The heavily indebted sector has attracted intense interest from hedge funds in the past six months, particularly from funds that specialise in distressed debt. They have found themselves looking for new targets now that the energy sector has begun to rebound.

A wave of bets against bonds issued by Tenet Healthcare, HCA and Community Health System in the wake of President Trump’s election sent prices tumbling, but reality-based investors swooped in to buy them and have either made a healthy profit or are getting a handy yield if they have not yet sold.

Election slogans about repealing the Affordable Care Act are all very well, but the reality is that removing insurance from millions of Americans will be politically difficult, so the collapse in patient numbers that bond sellers feared after election day may not ultimately be the outcome. The road to “repeal and replace” already looks longer and more tortuous than some Obamacare opponents hoped.

Reality-based investors now appear to be in control in this market. An executive order instructing federal agencies to relieve the burden of the Affordable Care Act made few ripples in the healthcare bond market, despite the possibility that it could eventually allow US citizens to get away without buying health insurance. The order’s consequences are unclear without further guidance.

If you bought healthcare bonds — or if you bought Boeing shares in the minutes after then President-elect Trump tweeted “Cancel order!” about the new Air Force One — or if you saw no point buying US Steel just because Mr Trump signed a memo saying oil pipelines will have to use American materials (in contravention of trade treaties) — then you are a reality-based investor. Your ranks are growing.

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Twitter: @stephenfoley

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