Page 25 - ARUBA TODAY

BUSINESS Monday 9 october 2017
A25

Of Mutual Interest:

As tax overhaul unfolds, some investing angles to consider

By ALEX VEIGA the proposed cut to the gain in the S&P 500 index. a provision to encourage tal untaxed overseas cash
AP Business Writer corporate tax rate than Should tax reform pass, it’s multinational companies next year.
The Trump administration’s most large-cap compa- also a good bet that inter- to bring back, or repatri- Several big multinationals
plans to slash corporate nies. That’s because small- est rates will move higher, ate, cash that they’ve kept are waiting for final de-
taxes and make other busi- tails on the provision be-
ness-friendly changes to fore they finalize their own
the nation’s tax laws have buyback policy, includ-
helped lift U.S. stocks in re- ing AbbVie, Honeywell In-
cent weeks. And depend- ternational, Amgen and
ing on which changes, if Rockwell Automation.
any, ultimately end up in Technology companies
signed into law, more com- are generally well-posi-
panies could see bigger tioned to benefit from tax
gains. repatriation as many of
“The market is still not pric- them have sizeable off-
ing in a lot for tax reform, shore cash balances, says
and for good reason,” Terry Sandven, chief eq-
says Parag Thatte, a mar- uity strategist at U.S. Bank
ket strategist at Deutsche Wealth Management.
Bank. People who prefer to invest
Even with a ways to go to in stocks via mutual funds,
a final tax package, strat- index funds or exchange-
egists and fund managers traded funds (ETFs) can
have identified some in- look at funds that focus on
vestment angles for inves- small-cap stocks or those
tors looking to trade on that own multinationals as
the prospect of a more a way to trade on the pros-
business-friendly tax policy: pects of tax reform.
Tax reform should benefit Trader Timothy Nick works on the floor of the New York Stock Exchange, Tuesday, Oct. 3, 2017. Here are some that Phil
many smaller companies, Stocks are edging higher in early trading on Wall Street as automakers and homebuilders post Blancato, CEO of Laden-
as well as multinationals solid gains. burg Thalmann Asset Man-
with a lot of profits parked cap companies tend to which will benefit banks overseas. All told, there’s agement, recommends:
overseas. Interest rates pay a higher tax rate now and other financial com- more than $1 trillion in cash — JPMorgan Small Cap
could rise, favoring finan- than large-cap firms. panies, Thatte adds. held abroad by S&P 500 Equity (VSEIX)
cial institutions. Consider that the gap be- He also favors value stocks companies, according to — The iShares Russell 2000
Under the administration’s tween the tax rates paid over growth-oriented Deutsche Bank. (IWM)
tax plan, the first major by the companies with the stocks. The last time the govern- — The American Funds
overhaul of the tax code highest tax rate and the “We are looking for that ment did this, in 2004, com- New Perspectives Fund
in three decades, corpo- lowest is at a 30-year high, envelope kind of strategy panies were given a tax (ANWFX), which is an inter-
rations would see their top according to Deutsche that does well, even if tax “holiday” on overseas prof- national fund that gains its
tax rate cut from 35 per- Bank. reform does not happen,” its that let them bring mon- exposure through invest-
cent to 20 percent. For a “The last time we had that Thatte says. “But if tax re- ey back into the U.S. at a ment in multinational cor-
period of five years, com- gap being so high, we got form does happen, they discount to the 35 percent porations based in the U.S.
panies could further re- tax reform in 1986,” says get an even larger boost.” tax rate. Most of the $300 “As a result, the companies
duce how much they pay Thatte. “Following the tax Among top 50 Russell 2000 billion that companies re- in the fund could benefit
by immediately writing off reform in 1986, the high-tax companies that stand to patriated went toward from repatriation,” Blanca-
their investments. The plan paying companies at that benefit the most from a tax share buybacks. to said.q
also would impose a new, time did outperform the cut are Skywest, Vectrus What does that mean for
lower tax on overseas cor- low-tax paying ones for the and KapStone Paper and investors? It could mean
porate profits and create a next two years or so.” Packaging, according to some multinational com-
new tax structure for over- Thatte recommends that Deutsche Bank. Some S&P panies that elect to bring
seas business operations of investors looking to bet on 500 companies that are back cash held overseas
U.S. companies. the tax reform favor com- paying higher average tax could use some of it for
Given those details, some panies in the Russell 2000 rates, and would benefit buybacks or increase their
companies are likely to index of small-cap stocks from a tax cut, are Hilton dividends to investors.
reap bigger benefits should over S&P 500 companies. Worldwide Holdings, Char- In a research note pub-
the proposal become law. The Russell has gained ter Communications and lished last week, Goldman
Small-cap companies, for about 1.6 percent since Dollar Tree. Sachs projects that S&P
example, are expected to the plan was unveiled, The White House’s tax re- 500 companies will bring
get a healthier boost from compared to a 1.2 percent form proposal also includes back $250 billion of their to-