The incoming US government may lower tax rates which would lead to an acceleration in merger and activity deals, according to David Saunders.
Speaking to Citywire Selector the co-manager of Franklin K2 Alternative Strategies fund and the newly-launched Franklin K2 Long Short Credit fund, said between $2-3 trillion could be repatriated to the US giving companies a range of benefits including increased liquidity.
‘If we see a meaningful reduction in the corporate tax rate, the initial commentary has been around an initial 15% tax rate for US corporates, you could see a reversal of a great many of those inversion trades where people would want to domicile their headquarters here in the US vis-a-vis the UK, which is where we saw so many companies move 18 months ago or 24 months ago. ‘
‘The combination of relatively high stock prices and cash onshore, makes it very easy to do a transaction and buy somebody,' Saunders said.
'We foresee a rollback of some of the stricter regulatory environment and so that could lend itself to more transactions when CEOs thought they would have been blocked under the previous administration.'
Saunders added that the US government under President Obama had blocked deals such as the proposed merger between healthcare companies Pfizer and Allergan.
Saunders currently has 15.05% of the Franklin K2 Alternative Strategies fund allocated to event driven managers and said they would benefit from these changes.
'This could create a lot of corporate activity in any one direction, which event driven managers could participate in,' he said.
'The backdrop right now certainly looks promising given these discussions and the nice thing about event driven investing is that they are typically announced deals when they happen so you can quickly move capital and deploy it in that area.'
Away from merger activity, other sectors set to benefit from the new US administration include infrastructure, Saunders said, as around $1 trillion will be put towards improving infrastructure in the US.
This is while the healthcare sector will also benefit, Saunders said.
'Healthcare is an area which has been under a lot of pressure from the proposed Clinton administration. That talked quite frequently about drug companies and drug pricing and has historically put a lot of pressure on that.'
'With the change of administration we believe they are going to try and reconfigure Obamacare and we don't think we are going to see the same sort of pressure put on drug companies as had been previously, so we like the healthcare space at present.'
Over one year to the end of October 2016, the Franklin K2 Alternative Strategies fund lost 1.3% but it is ranked 26 out of 73 in the fund of funds category.