2024 U.S. Election Implications: Stay the Course

_{Key Takeaways}

• Despite political changes, our long-term investment strategy remains unchanged. We will continue to focus on building concentrated portfolios of high-quality, resilient companies. We are not planning immediate adjustments to our portfolios, as long as corporate earnings and economic growth remain strong.
• The potential impacts to market sectors will depend on how campaign rhetoric translates to policy implementation. For instance, proposed tariffs may affect consumer prices and retail performance, while changes in healthcare policies could influence drug pricing negotiations. Our investment team is closely monitoring these developments to assess their implications for current and prospective holdings.
• We believe our approach to sustainable investing is as relevant as ever, especially in an environment of deregulation. We know investors are concerned that the government won’t press on sustainability commitments, but we believe private companies can take the lead. We will continue to serve as a consultant to our portfolio companies and will remain vigilant for potential risks to a company’s future value.

Investors are asking about the impact of the 2024 U.S. election on the markets and sustainable investing. As President-elect Donald Trump prepares a new administration, he has an advantage with the balance of Congressional power tipping to the Republicans. We expect changes in key policy areas, including tax cuts, higher tariffs, industry deregulation and climate change, among others. We will stay alert, as the primary objective of our actions is to enhance the long-term durability and strength of our portfolio companies for the benefit of our investors.

While a major shift in political administration can be grounds to make some adjustments to an investment approach, nothing about the election outcome changes what we do day to day. For 40 years, Parnassus Investments has been focused on helping investors reach their goals with investments that create enduring value.

We continue to be bullish on U.S. equities and the resilience of the U.S. economy. Our portfolio managers plan to stay the course and not make any immediate portfolio changes based on the election outcome as long as corporate earnings remain strong and the economy continues to grow.

Our experienced portfolio managers have been through multiple election cycles and have navigated the uncertainty that arises with each change of administration. We are playing the long game. In fact, a few of our current holdings have been in our portfolios continuously through five or more administrations, on both sides of political party lines. For example, Waste Management, the largest U.S. provider of solid waste services, has been held by various Parnassus funds since June 2004. Linde, the world’s largest industrial-gas supplier, has been held across our funds since September 2008. Both companies benefit from wide competitive moats and recurring revenue through long-term contracts. We remain committed to curating concentrated portfolios of high-quality stocks with durable, resilient businesses in the pursuit of strong, long-term returns.

_{Potential Sector and Market Impacts—What We’re Watching}

It will take some time before the new administration is assembled and begins acting on Trump’s campaign promises—some of which may never be fully realized. In our research, we will be evaluating the implementation of the incoming administration’s policies. Based on Trump’s campaign proposals, our sector heads indicate the following as possible impacts:

• Consumer Sectors: Trump has proposed steep tariffs, which could add to inflationary pressures. They could also weigh on retailers, although companies with the strongest pricing power should perform relatively well.
• Cyclicals: Trump could slow energy-transition efforts by repealing parts of the Inflation Reduction Act. High tariffs could lead to a reshoring of manufacturing to the U.S. and increase demand for freight transport and for plant construction.
• Healthcare: Trump may repeal or replace the Affordable Care Act. While he has supported efforts on drug-price transparency, he is likely to be less aggressive in negotiations with drugmakers.
• Technology: Tariffs could also have an impact on Chinese imports related to tech equipment, semiconductors and hardware.

Our investment team will take into consideration the short- and long-term impacts of new policies on the companies we hold or are considering for our portfolios. We remain constructively optimistic that stock prices can continue to rise over the long term and we are excited about the possibilities created by the shift away from legacy computing infrastructure to AI infrastructure. Additionally, interest rate cuts amid a healthy economic backdrop have historically been a good setup for stock prices to rise.

_{What It Means for Sustainable Investing}

We believe our approach to sustainable investing is more relevant than ever. We know investors are concerned that the government won’t press on sustainability commitments, but we believe private companies can take the lead. And we’re here to help them chart the path and stay on course.

Our firm was founded on the belief that companies that take care of the human and natural resources on which their firms rely have the greatest chance of being successful over the long term. The companies we assess for consideration in our portfolios have to meet high standards for quality, including sustainable business practices. We remain committed to serving as a consultant to our portfolio companies and will continue to remain vigilant against potential risks to a company’s future value.

Some possible implications of the new administration’s policies could be materially risky for companies if they fail to maintain prudent governance and strong oversight of material risks. For example, in a deregulated environment, companies may be more likely to back away from publicly stated sustainability commitments, especially GHG emissions-reduction targets.

Overall, while pro-ESG initiatives at the federal level will likely dissipate or disappear under a second Trump administration, existing state and international regulations, along with pressure from investors or counterparties, will likely persist. Companies that think long term won’t be abandoning their ESG initiatives, because they are good for the bottom line in the long run. Quality companies recognize this and consider key stakeholders in decision making. They tend to build businesses that are designed to thrive in any environment.

Keep in mind that some of the potential risks may be years down the road. Two years from now, there will be another election cycle. Changing the long-term course of sustainability improvements isn’t going to be a winning strategy, especially for investors like us that hold stocks for the long term.