London Daily

Focus on the big picture.
Thursday, Oct 22, 2026

Hedge Funds That Planned for Election Chaos See a Blue Wave

Hedge Funds That Planned for Election Chaos See a Blue Wave

For hedge fund managers, preparations for chaos in the U.S. elections are giving way to strategies to capitalize on a sweeping Democratic victory.

Just six days away from final voting, several top funds see former Vice President Joe Biden winning the presidency as well as the possibility of a so-called blue wave in which Republicans also lose control of the Senate.

Asset managers UBS O’Connor, Harvest Volatility Management and MKP Capital Management -- with a total of more than $12 billion in assets -- say the odds are that President Donald Trump will be unseated, and they have embraced an array of strategies from buying value stocks to betting on commodities to cash in on the outcome.

“We’ve been obsessing over this for the past three months,” said UBS O’Connor Chief Investment Officer Kevin Russell. “This election that was such a big and obvious risk event is turning into a much more benign scenario from a risk perspective.”

Yet for all the agreement on the direction of the election, funds are being cautious to ensure they keep the gains already made in a rough-and-tumble 2020. They aren’t going all-in on one big bet because there’s potential for a late-campaign surprise -- as recent election history has shown -- or a contested result.

As a group, hedge funds have a spotty record at forecasting markets in recent years. The $3.3 trillion industry’s returns trail the S&P 500 in 2020 and lagged behind the U.S. stock index in four of the six prior years, according to data compiled by Bloomberg.

Hedge fund managers appear to be tracking the sentiment on Wall Street. The Cboe Volatility Index -- known as the equity market’s “fear gauge” -- has been relatively subdued this month, in large part because traders are wagering on a Biden win. While some Wall Street analysts are focusing on potential benefits from the Democrats’ agenda, such as an increase in fiscal stimulus, others have raised concern that its tax increases could hurt corporate profits.

Billionaire investor Stan Druckenmiller said at a conference Tuesday that a sweep by Democrats and the specter of higher taxes and inflation will weigh on equities in coming years.

Poll aggregator FiveThirtyEight’s forecasting model gave Biden an 88% chance of winning the Electoral College as of Tuesday, though concerns linger that a tight race could lead to a contested legal fight given the polarized electorate, a record number of mail-in ballots and Trump’s hurling of unsubstantiated charges of voter fraud.

UBS O’Connor’s algorithms put a better than 50% chance on a blue wave, Russell said in an interview. The UBS Group AG unit’s $2.4 billion multi-strategy hedge fund had, as of Oct. 27, modestly pivoted toward value-oriented industrial stocks such as those in the steel and materials sectors, which could benefit from Biden’s $2 trillion infrastructure and green-energy plan.

Josh Silva, a portfolio manager at Harvest Volatility Management, said he is long commodities and small-cap stocks because they could get a boost from a Democratic sweep.

Scott Bessent, head of Key Square Capital Management, told investors in a letter that the probability of a Biden win that’s confirmed within 72 hours of the polls closing on Nov. 3 is about 50%. In the event of a blue wave, he’d be short U.S. 10-year Treasurys as well as 30-year notes, he said.

Bessent also said he’d go long the yen, the yuan (along with 5-year China government bonds), the Mexican peso and a basket of currencies including the South African rand, the Colombian peso and the Brazilian real (along with 5-year bonds). Stock wagers would include Chinese shares and a basket of industrials, transports, homebuilders and commodity producers, he said.

Managers may be relieved when the contest is over -- and with good reason. Over the past two decades, hedge funds have performed better on average in the three months after a U.S. presidential showdown than in the three months prior, according to research firm PivotalPath.

Macro hedge fund MKP Capital, which managed $2.2 billion as of the end of 2019, also believes the election will be a boon for risk assets regardless of the outcome -- as long as the Phase III trials for a Covid-19 vaccine prove successful, according to an Oct. 21 letter to investors. The firm’s base-case scenario is a blue sweep that, paired with early approval of a vaccine, would see at least 10% added to equities, the letter says.

Broad Reach Investment Management sees a Biden victory as the likeliest outcome, the firm told investors in a third-quarter letter. That could boost emerging markets by calming the “unpredictability and volatility” fueled by Trump, the macro fund wrote. Expansive fiscal policy, especially if the Democrats take the Senate, coupled with a recovery from Covid-19 might “super-charge” returns from the developing world, according to the firm.

Volatility Bets


Some funds are trading around volatility itself.

“That is a reasonable play where you don’t have to take a position on the election directionally,” said Jonathan Caplis, PivotalPath’s chief executive officer.

Brevan Howard Asset Management, which this month acquired a 25% stake in volatility hedge fund One River Asset Management, has been long volatility for most of the year. While the firm sees a “significant probability” of a Democratic sweep, it also points to a 15% to 20% chance of a contested election that could push a resolution into January, according to an October letter seen by Bloomberg.

Potential turbulence has others treading cautiously. Many discretionary global macro funds have curbed risk by reducing leverage or putting on hedges, Caplis said.

Equity funds also are cutting exposure, said Darren Wolf, who oversees $14 billion as head of alternative investment strategies for the Americas at Aberdeen Asset Management. Memories of 2016 are raw after many investors were wrong about both the election result and the market reaction. They’re wary of a dispute this time.

“The scariest thing would be uncertainty over the outcome,” Wolf said.

Savoie Capital, a $1.2 billion asset manager for family offices, is focusing on policy-related trades for any outcome, chief investment strategist Ben Phillips said. It’s increased wagers on infrastructure companies such as Evoqua Water Technologies Corp. and Construction Partners Inc., which he expects to benefit from spending under either administration.

Zachary Squire, CIO at systematic macro hedge fund Tekmerion Capital Management, expects that whichever candidate wins, the yield curve will steepen as growth and inflation pick up in the U.S. His fund is going short U.S. interest rates versus those of slower-growing Japan and Australia.

“Given the equity markets have run as far as they have, yields are the under-appreciated opportunity,” he said.

Newsletter

Related Articles

0:00
0:00
Close
Parliamentary Inquiry Highlights Urgent Need to Address Housing Shortage as Scottish Completions Hit Eleven-Year Low
United Kingdom and Singapore Sign Comprehensive Financial Agreement to Deepen Digital and Sustainable Market Ties
Greggs Announces Plan to Close Four Manufacturing Facilities and Cut Seven Hundred and Forty Jobs
International Monetary Fund Raises United Kingdom Economic Growth Forecast While Warning of Inflationary Pressures
Energy Security and Net Zero Committee Urges Government to Shift Policy Costs Onto Gas to Lower Household Bills
Housebuilding Across Scotland Plummets to Eleven-Year Low Despite Government Pledges to Tackle National Housing Emergency
Greggs Announces Factory Closures Across Northern England and Scotland Affecting Seven Hundred Forty Jobs
United Kingdom and Singapore Conclude Eleventh Financial Dialogue in Singapore to Deepen Cooperation on Digital Finance and Capital Markets
Energy Security and Net Zero Committee Urges Government to Shift Policy Costs to Gas Bills and Tap Windfall Profits to Lower Consumer Prices
British Broadcasting Corporation Announces Major Cost-Cutting Overhaul to Close Linear Broadcast Services for Television Channels BBC Three and BBC Scotland Alongside Digital Radio Station BBC Radio Four Extra
London Capital Markets Face Renewed Scrutiny After High-Profile Offerings Underperform Post-Listing
Green Party Wins Historic First Westminster Parliamentary By-Election in Gorton and Denton
Environment Secretary Emma Reynolds Unveils Sweeping Regulatory Overhaul for English Water Industry
United Kingdom Health Security Agency Confirms Thirty-Four Cases in Kent Meningitis Outbreak
Ministry of Defence Prepares Heat Pump Subsidy Cuts to Fund Urgent Military Modernization
British and European Union Officials Schedule Long-Awaited Bilateral Leaders Summit for November Twentieth
Bank of England Governor Andrew Bailey Urges Strict Fiscal Credibility to Protect British Bond Markets
United Kingdom Inflation Rises to Three Point One Percent Driven by Escalating Fuel Costs
Profit Warnings Among London-Listed Companies Reach Two-Year High Amid Global Energy Shocks
Chancellor John Healey Signals Targeted Tax Changes on Banks and London Corporate Offices Ahead of Budget
British Government Reallocates Twenty-Five Per Cent of International Climate Finance to Global Biodiversity Projects
Initial British Carbon Border Taxes Set to Undercut Parallel European Union Tariffs on Industrial Imports
Whitehall Prepares National Zero-Interest Loan Initiative to Accelerate Domestic Heat Pump and Solar Adoption
European Union Offers British Automakers Access to Hybrid Vehicle Trade Protections Subject to Strict Regulatory Alignment
British Probation Officers Threaten Widespread Industrial Action After Rejecting Five Per Cent Government Pay Offer
Microsoft Abandons Major British Artificial Intelligence Data Centre Citing Severe National Grid Power Constraints
United Kingdom Inflation Accelerates to Three Point Four Per Cent Ahead of Chancellor John Healey's Inaugural Autumn Budget
Surging Cloned Number Plates Severely Complicate Traffic Enforcement and Police Investigations
Mounting Opposition Challenges Planned Rollout of Autonomous Taxis Across London
Influential Think Tank Urges Rejoining European Union to Navigate Geopolitical Crises
Government Review Recommends Slashing Benefits to Fund Youth Employment Initiatives
Senior Minister Shabana Mahmood Seeks New Law Enforcement Pact With European Union
Airbus Executive Warns Britain Risks Losing Crucial Role in European Space Industry
Exorbitant Electricity Costs Push British Steelmakers to Worst Competitive Position in Three Years
British Food and Beverage Exports to European Union Collapse by Over a Third Since Brexit
Up to Twenty English Maternity Units Face Impending Closure Due to Safety and Staffing Crises
Government Declares Severe Drought Across Southern England Following Record Dry Spell
Corporate Profit Warnings Reach Two-Year High Amid Middle East Conflict and Rising Costs
International Monetary Fund Warns Chancellor John Healey Against Proposed Bank Tax Raid
Northern Ireland Secures Favorable Agricultural Export Agreement with European Union
Scottish Government Approves Major Offshore Floating Wind Farm Near Aberdeenshire
High Speed Two Rail Project Faces Three Billion Pound Cost Escalation on Initial Phase
National Health Service Warns of Winter Capacity Crisis Across English Hospitals
Tata Steel Confirms Two Thousand Job Cuts at Port Talbot to Fund Green Transition
Global Microchip Developer Announces Three Billion Pound Semiconductor Plant in Cambridge
United Kingdom Artificial Intelligence Safety Institute Proposes Mandatory Licensing for Generative Models
United Kingdom Commits Additional Long-Range Weapons and Air Defenses to Ukraine
British Chancellor Overhauls Infrastructure Financing to Bypass Borrowing Constraints
Bank of England Holds Benchmark Interest Rate at Four Point Five Percent
First Minister Rhun ap Iorwerth Confirms Constitutional Discussions Over Welsh Independence During Initial Bilateral Call with Prime Minister
×