John Bryson: 

Hello everyone and welcome to the Portfolio Intelligence podcast. I'm your host John Bryson, head of investment consulting at John Hancock Investment Management. 

 

John Bryson: 

As always, the goal of this podcast is to help investment professionals deliver better outcomes for their clients and their practice. We're going to take a different approach today. In the past, we brought you business‐building ideas, capital market updates, trends in portfolio construction. We've also got a little unique and talked about the different decision‐making processes that go into investments. We've talked about the CARES Act. We've talked about how to separate yourself from the pack on LinkedIn. 

 

John Bryson: 

Today we're going to talk about a topic that's really important to a lot of different individuals, whether you're an investor or an advisor, and that's about college admission in the age of COVID. We've been hearing a lot of questions from our advisors. We've had great success educating them on what's going on and we've done so by inviting college admissions coach Nancy Steenson to our podcast. Nancy, welcome to the podcast. 

 

Nancy: 

John, thank you so much for having me. 

 

John Bryson: 

We're thrilled to have you. Folks, I'll tell you a little bit about Nancy: She's a graduate from Tufts University. She served on the Timberland Regional School Board for six years, and she was the chairman for two of those years. She also served on a number of important committees, including the curriculum committee, which she chaired for two years. 

 

John Bryson: 

Nancy is extremely passionate about education. She's always advocated for strong academics in public schools, and really it's all about preparing the student to go on to college. She believes that many students underestimate the college admissions process and she works directly with them to help market themselves in their best light by sharing underutilized strategies. That what we're going to talk about today.

 

John Bryson: 

These strategies to help those students distinguish themselves from the thousands of other applicants out there. With her guidance, students have been accepted to very selective colleges and top programs amongst their fields.

 

John Bryson: 

With COVID, there's a lot of things it's impacting. Number one, it's impacting college football, that's near and dear to my heart, but probably not the most important COVID's having on the college landscape. Nancy, I have some questions here. I want to start with the traditional SAT. Is that still important? What impact has COVID had on SAT testing and will that be needed this year? 

 

Nancy: 

John Bryson, that's a really hot topic right now. A little bit of background, the past few years, we've been seeing a trend toward test‐optional schools, which pretty much means if you take the test, go ahead and submit it. If you don't want to take the test or if you've taken it and you don't like your score, you don't have to submit it. So that's a trend we've been seeing over the past few years and students are very excited about it. 

 

Nancy: 

In truth, prior to this year, it's a little bit misunderstood. The test‐optional trend by colleges is a way to increase the number of applications. I'm sure you can see why it's appealing to apply to a school that doesn't require a test. It increases applications and it decreases the admissions rate. 

 

Nancy: 

These are both really good things for colleges. It increases their status in the U.S. News & World Report rankings. It actually increases their financial rating with S&P, but the fact is that most admitted students submit scores, most admitted students submit scores. 

 

Nancy: 

Now, this year we've got COVID‐19. What does that mean? Well, virtually all the colleges now have said we are SAT optional because we understand you might not be able to take a test. The SAT and the ACT, which is the other testing company, have scheduled and canceled test after test. Parents are worried about the safety of being in a room with many other students. Certainly, this is more of an issue in some areas of the country than others, but do you want to put yourself at risk to take a test? So these are all very fair questions. 

 

Nancy: 

For that reason, colleges are saying, "It's okay. We are test optional." Now to be clear, test optional does not mean test blind. Test blind means it doesn't matter if you've taken the test. We are not going to look at the score. That's not where we're at yet. Colleges are being a little bit coy right now. They're saying, "We're test optional, but if you can take a test, we'd really like to see the score." 

 

Nancy:

Folks are a little bit unhappy with that because it puts pressure on high‐achieving students to go ahead and take that test possibly in an unsafe environment in order to submit a very, very good score. It's really contentious right now and there are people, I know in my field consultants, emailing colleges, getting them to change their language in real time right now on their websites in terms of how much they're actually encouraging students to take the test. 

 

Nancy: 

This is changing daily, but I would still say, if you live in a safe area, relatively safe with COVID‐19, if you feel comfortable with it, and that's a personal decision and it's a family decision, go ahead and take a test because if you can get a score that really reflects your abilities as compared to your transcript, it will only help your application. 

 

Nancy: 

If you feel unsafe, if you don't feel that testing is worth your time because you're not a good test taker, well then this is your year because colleges are really, really going to be looking at many, many applications without tests. 

 

Nancy: 

I will tell you from my conversations with college representatives, they haven't figured out what that's going to look like, but I will tell you that every other piece of the application is going to matter that much more. 

 

Nancy: 

So then if you don't submit scores, all the other pieces and parts, the high school transcript, the essays, the recommendations, the extracurriculars, they're all going to count much more heavily in the absence of scores. 

 

John Bryson: 

Okay. That's great advice. I mean the default option could be, I don't love my scores or I'm worried about them, so I won't send them, but you're not advocating that. If people are safe and you can produce the scores and you're comfortable with going in to take the test, that's the best course of action. There are other options, but let's talk about that. 

 

John Bryson: 

If you go that route of not taking the SAT, you just said the other parts are important. What would you say is the most important part of the college application and how can they highlight their strengths in that area, if you will? 

 

Nancy: 

Yeah. Without question, the most important part of the college application is the high school transcript—that has always been the case and it continues to be the case this year. It is more important than GPA. It is more important than class rank and it is more important than an SAT score. 

 

Nancy:

This I find time and again, is underappreciated by parents and students, and that's why I try to get out and talk to people and let them look at this from eighth grade, from seventh grade forward because you can't scramble as a junior or senior and change the courses you've taken. 

 

Nancy: 

Colleges are looking for students to take the most rigorous classes available to them in their high school. If your high school offers AP classes and you're an A student in your honors classes, they expect you to avail yourself of those opportunities and take AP classes. 

 

Nancy: 

Conversely, if your high school does not offer any AP classes, that will not be held against you. Whatever the arena is in which you are studying and learning, they want you to push yourself to the next level. If your high school offers what we call CCP, or college and career prep nonhonors classes as well as honors, and you an A+ in all your classes and none of them are honors, and you come to me and say, "I really want to go to Yale." I have to break the news to you, that's just not going to happen because they're looking for students who really challenged themselves. 

 

Nancy: 

Furthermore, they're looking for students who challenge themselves in traditional academics. This is where I find again, parents don't fully understand nor do students that a lot of the fun classes that high schools are offering now, they're electives. Think about when I went to high school, more years than I care to admit, remember the dropouts. They dropped out of high school. 

 

Nancy: 

We're not seeing that so much in the 21st century in a lot of our suburban high schools. We're providing classes to capture those kids. Just because we offer history of film doesn't mean the college‐bound students should take that class. We're still wanting to see the rigorous fundamentals. If you want to go into engineering, by all means, you must take physics, you must take calculus. If you want to take Engineering I and II, and build 3‐D models, that's wonderful, but not instead of physics, not instead of calculus. 

 

Nancy: 

I see too many students come to me as rising seniors with all kinds of plans to go to very prestigious colleges, or engineering or nursing schools, and they don't have the transcript to back it up and it's too late to do anything. Remember rigor is of the utmost importance. Colleges would love, in an ideal world, would love to see four years of five academic subjects. So that's math, science, English, foreign language, and social studies. 

 

Nancy: 

Can you back off on math if you want to go to music school? Of course. Can you back off on Spanish V if you want to go into engineering? Of course, but the bar is five academic subjects for four years and the extracurriculars on top of that. Strong lab sciences, strong English with a writing component, a literature component, and as I say, everything else after that is extra. 

 

John Bryson: 

Excellent. I think you said it best. The importance of the rigor is really what shines. That came through loud and clear. Another part of the college admissions process is certainly the essays. What are colleges looking for now in the essay that's part of the application process? 

 

Nancy: 

This is my favorite topic. I absolutely love to talk about the essay. This is the student's opportunity to tell the college who they are as more than a data point. The GPA's a data point, the test score is a data point, the class rank is a data point. We do have a transcript, but let's face it that's rather dull. It's a list of classes, but how can a student shine? 

 

Nancy: 

Well, most colleges don't offer interviews anymore. We're seeing a little resurgence this year of interviews because of COVID‐19 and they're really trying to reach out, but many colleges are not interviewing anymore. Think of the essay as your interview. 

 

Nancy: 

Think of how you want to jump off the page. When your application is being read, it's what we call reading season. The reps are reading application after application after application, essay after essay, and let's face it, a lot of them are dull. So you want to be the essay that they go, "Wow, this is interesting. I want to meet this student. I want this kid to come to my college." That's the reaction that you want. 

 

Nancy: 

After a first read, the first person in that office to read your application at XYZ college, after a first read that application is going to be recommended for admit, deny, or wait‐list. It's not necessarily what's going to happen, but it's going to be recommended. 

 

Nancy: 

You want to make sure you're recommended for admit, at least, admit or wait‐list. The essay is really important component that can really wake up that admissions rep who's reading the applications. Most students misunderstand what a good college essay is and I would argue it's because of the word essay. 

 

Nancy: 

Our students have been taught to write essays now for 11 years if they're going into senior year. When I was in school, we called it expository writing. That might be something that other adults can relate to. Our kids today call it the five‐paragraph essay. That's sort of the lingo that they use today, still the same thing. It's a concise, well‐written, super boring piece of paper.

 

Nancy: 

Your English teacher will love it and you're going to need to know how to write like that in college, but when you're writing a college essay, it's a completely different thing. It's not an essay, and that's why I 

don't like the word essay. It's a personal narrative. 

 

Nancy: 

There are many, many very good books on this subject. You can get in any bookstore online. I own most of them. They're going to tell you exactly what I'm telling you. So this is not something that I've cooked up. The essay that is a personal narrative and it's your chance to talk about yourself in a very different, more informal, creative way. 

 

Nancy: 

The college wants to hear your voice as if you are sitting across the table having a conversation and that's why I call it your interview. It's really your chance to tell them who you are. Sadly, a lot of kids don't read the newspaper these days, but I will tell those of you who do read the newspaper, go to the last page of the first section, where you'll find the op‐eds. Skip past all the political stuff because that's just too depressing. Get right to the human interest op‐ed pieces. 

 

Nancy: 

Those would be a perfect example of a great college essay. Just a slice of life in someone's own voice. Those are the stories that college admissions officers are impressed by and those are the stories they remember. If they remember your essay, then they're going to remember you when they're in committee trying to decide who to admit. 

 

John Bryson: 

That's great. I mean, your whole point of this is not a check‐the‐box. This is really how you can stand out, grab the reader, make it the story of your life, if you will. That really makes it clear how you're going to separate yourself. Thank you. 

 

Nancy: 

Exactly. 

 

John Bryson: 

You mentioned transcript first, essay is critical. What about the other extracurriculars? For example, when I was growing up, my parents and guidance counselors and teachers would say, "You want to be a well‐rounded student. That's what they're looking for. Academics, athletics, whatever it might be for your extracurriculars." Has that changed in what should be people be thinking about? 

 

Nancy: 

Absolutely. Absolutely. I'm going to bust that myth right now. Colleges are not looking for well‐rounded kids. Now, if you're well rounded, don't panic, it's not going to hurt you, but do not go out of your way, trying to be well rounded. That is the biggest mistake a student can make. 

 

Nancy: 

Prior to coronavirus, we've all been shut at home. I think most people would agree with me when I say that kids today are overcommitted, stressed out, and exhausted, and none of it is necessary. There's a message somehow that students have received that they need to be in a lot of clubs and a lot of activities. If they're a three‐season athlete, well they've got to join student council because colleges like that, or if they're a musician and they're in the band, I better get some volunteering in at the nursing home because college is like that. Not necessarily.

 

Nancy: 

Colleges are not looking for well‐rounded students, they're looking for a well‐rounded student body. They want someone who's really strong in music. They want someone who speaks four languages because for the love of it, then they want someone who's an archery champion, and a rodeo champion, and maybe someone who just could play chess all day long. They're looking for students who take what they love and take it to a very, very high level. 

 

Nancy: 

Do not join a million clubs because you think it's going to impress—it will not. Save your energy and pursue what you really love because that's really what's genuine anyway. Colleges in particular are, especially the more elite institutions, are looking for leadership, they're looking for achievement, and they're looking for recognition. For students who have some of the most selective schools in the country on their list, they might want to think about throwing their hat in the ring to be vice president of the band. 

 

Nancy: 

How about start a club? If your high school doesn't have a particular club and it's something you've always wanted to do, be the one who starts it. That is what's most impressive. There's a great book called How to Be a High School Superstar written by Cal Newport and I highly recommend it to parents. 

 

Nancy: 

His whole premise in the book is be interesting, not busy. If you just chew on that for a minute: be interesting, not busy. He says, "Accomplishments that are hard to explain are more impressive than accomplishments that are hard to do." It's hard to become the captain of the football team. It's hard to be the star of the high school musical, but there are a lot of them out there. A lot of them out there applying to college. 

 

Nancy: 

Accomplishments that are hard to explain would be creating a nonprofit with a very particular mission. Putting together some technology support for your local library in this era of COVID because the head librarian has somewhat limited skills in that area and needs to be reaching out to the community, needs to be reaching out to perhaps the elderly who are shut in, all of us who are shut in. 

 

Nancy: 

Specifically during this time of COVID‐19, everyone's spring extracurriculars disappeared, everyone’s. You're not the only one. So no one went to their track practice, no one went to all‐state band; everything was shut down. Colleges are all saying, "That's okay. We understand. Take care of yourself, make sure you don't get sick. Take care of your mental health." 

 

Nancy: 

While that is all true, the most selective colleges are going to be looking to see how kids adapt. They know that students don't have the roles to play that they normally do. The things that normally consume their time. The activities carved out by their high schools and society. So this is a huge opportunity for young people and they are going to be looking to see who is making the most of it. 

 

Nancy: 

What are these kids doing outside the box? Because that is what was always impressive, self‐starters and leaders. You can't get to your track practice, what can you do? What have you always wanted to learn? What have you always wanted to do? What can you do to make an impact on your community or to improve yourself? It could be learning another language. It could be learning a new instrument. It could be volunteer work. It could be starting up a Zoom with your whole track team and saying, "Look guys at four o'clock every day, I'm going to be working out who's in?" That's leadership. 

 

John Bryson: 

I mean, it makes a lot of sense. These colleges want to produce future leaders, government leaders, business leaders, whatever it may be. If they're bringing in those people that are self‐starters and showing that initiative early, it's easier to shape them and push them forward. All of that makes sense and I think it's really important to your point that during this situation, what did you do? This COVID situation, what did you do to make yourself better or your community better? That's going to stand out to colleges down the road. That's great advice.

 

Nancy: 

Absolutely. Yeah, I want to jump in on that because it's important to remember that students who are leaders in their high school inevitably become leaders on college campuses. Students who are leaders on college campuses become leaders in our world. Whether it be in the nonprofit sector, whether they're inventors, whether they invent vaccines that save humanity, or start successful corporations. These people go on to become movers and shakers in our world and colleges know it.

 

Nancy: 

They know that those people will reflect back very well upon their alma mater and they know that those people are more likely to become financially successful and donate money back to their alma mater. They are looking for future leaders and in so doing, they're looking for current leaders. 

 

John Bryson: 

Yeah, it's a circle. It keeps building upon itself, it's great.

 

Nancy: 

Indeed. 

 

John Bryson: 

Nancy, one of the things that's foremost in front of the minds of our main audience, financial advisors, is helping their clients figure out how to pay for college. One of the things we get a lot of questions on is, what's the difference between financial aid and merit scholarships and what other options are out there to help them with paying for college? 

 

Nancy: 

Great. Yeah. A few ways you can pay for college. Number one, you can write a check and if you've got to 529 account you can do that and that's the beauty of that. The other thing is you can do is apply for need‐based financial aid. You can hope for a merit scholarship, or you can take out student loans. 

 

Nancy: 

Now, we know there's a student loan crisis in this country, so that's not an ideal way to pay for college. Your guys know all about the saving and 529s I'm going to leave that alone as well. What's left? Financial aid and merit scholarships, and these two are often confused and I really feel strongly about making sure people understand the difference. 

 

Nancy: 

Financial aid is need‐based. One has to fill out a form called the FAFSA and the government will tell the family how much you can afford next year in college dollars. It's not a negotiable number. Usually the number is far more than one expects. 

 

Nancy: 

You've got your double income house; you fill out the FAFSA, you submit it, and then you're told, "You can afford $70,000 a year in a college dollars next year." Whether you can or not is not part of the equation. The government tells you. That means you will not qualify for much aid if at all. 

 

Nancy: 

What do you do about that? Well, the flip side is how about a merit scholarship? That's basically tuition discounting and it's a model that many, many colleges have been using for years. They have a sticker price and let's say it's $70,000. Well, the fact is they discount many, many, many students' tuition. So very few people are actually paying that at that college. The important thing to know is that some colleges do financial aid very well and some colleges do merit scholarships very well. It's important to know the difference. 

 

Nancy: 

It's important to know what it is you're looking for and then let that direct your college search. For instance, if you would very much like to go to a top tier college, you think you want to go to Yale, or Duke, or Georgetown. It's important to know they do not give merit scholarships to anyone. Everyone who applies to these schools is smart. They're not going to lure you in with money, hoping to get you to commit. 

 

Nancy: 

On the flip side, you've got colleges a notch down from that that can be very, very generous with needbased scholarships. So you don't have to show any need whatsoever, but if you are on that upper end of the students who are applying, they're going to lure you in and try to tempt you with some significant tuition discounting. 

 

Nancy: 

On the flip side, I will tell you that for those who truly show financial need, they do the FAFSA and they have let's say an expected family contribution of $20,000. That would mean if the cost is $70,000, they're eligible for up to $50,000, if you follow my math so far. Bottom line is the most well‐endowed schools, which is often the most selective schools, are the most generous with financial aid in the sense that they will meet a 100% of your demonstrated need and they meet it with grants that you do not have to pay back. 

 

Nancy: 

This is all to just explain that financial aid is different from merit scholarships, and it's important to know which one you need and which one you might qualify for because that will really direct the college search. 

 

John Bryson: 

Got it, really helpful. Thank you. The last topic I want to touch upon is again, really relevant in this environment with COVID. I'm hearing a lot more about students considering a gap year as they think about what the going back to school plan will look like. 

 

John Bryson: 

What advice do you have for incoming students if they're thinking about this? What are the dos and the don'ts? When should they apply to college before or after the gap year? Are there any considerations like that they need to think through? 

 

Nancy: 

Sure. Gap year has always been around, but not nearly as heavily utilized or heard about as now during this coronavirus. A gap year traditionally was something that a student would say, "Well, I want to go to college. I know I want to go to college, but there's something I want to do first." It's usually not a stall tactic. It's something like, "I want to go work on a sheep farm in Australia for a year, or I want to start my own business, or I want to launch my website." 

 

Nancy: 

Sometimes it's to save money for college. Generally, the way it's done is you apply to college your senior year, just like you would as if you wanted to go to college the next year. Once you're admitted, you make a request to take a gap year and they would usually ask why? And if you have a valid reason, they grant the gap year. 

 

Nancy: 

Some colleges don't need a reason why, but many, many do. That's traditionally how it's been done. This year there's a lot of talk about gap years because students don't want to start in the fall if it's going to be online. They don't want to start their freshman year without coming to campus. We heard a lot of buzz about more and more students are requesting a gap year. 

 

Nancy: 

Right now that's a bit up in the air. All spring and into the early summer the colleges were all saying, "Not to worry. If you want to gap year, you'll have to apply for one, but by a certain date and we're not just going to grant gap years to every student who asks for one because our financial model wouldn't allow for that." If we're expecting a 1,000 freshmen in the fall and suddenly 400 of them don't want to come, they can't sustain their budget. 

 

Nancy: 

They're turning people down for gap years in record numbers because they have to. However, there was something in the paper, just I believe two days ago, that Harvard, this year, has approved far more a gap year requests than they ever have before. It was a very high number. That's throwing a little bit of monkey wrench into what we're all hearing from the other colleges. Perhaps Harvard can afford to do that. The question is, what's it going to do on the back end? 

 

Nancy: 

You've got your rising juniors who will be applying the following year. Will there be space for them if everyone else is holding back a year? The answer is, I think at most schools, it's not going to be an issue because these gap years are not being approved in record numbers. I think at Harvard, it might be an issue. I think there might be some spots that are not made available to the next class because of these kids requesting and being granted the gap year. 

 

Nancy: 

The important thing to note, no matter what, is that if you think you might want a gap year, do not coast through your senior year kind of wait and see what happens and then apply that next fall. The time to apply to college is when you're still in high school. You can get your transcript, your letters of recommendation from your teachers while they still remember who you are. Take your SATs or ACTs if you're going to take them when you still remember high school, algebra and geometry, while you're still reading complicated texts that you can answer questions about while it's all still fresh. Then request that gap year in the spring. 

 

John Bryson: 

Super helpful, super helpful from beginning to end, Nancy. I got to tell you, I love this conversation. My 14‐year‐old daughter's going to hate that we just had this conversation because I'm going to tell her you're going to take harder classes, get better at writing essays, really stand out, start a profit, all these different ideas that we've got. She's only 14, so we've got some time to get started. 

 

Nancy: 

Thank you, John. 

 

John Bryson: 

You're welcome. To the audience, if you want to learn more about Nancy and her services, please check out her website. It is steensoncollegecoach.com, or you can email, email her directly at nancysteenson@comcast.net. 

 

John Bryson: 

I will say that if you want to learn more about different scholarships that are available, you can look at the John Hancock Investment Management website, jhinvestments.com. We do have a tool out there. It's not a product plug, but it is a great way for you to talk to your clients about what scholarships you might be able to find available. We make that available for free because honestly we want to help you make your client successful. 

 

John Bryson: 

I want to thank our audience for listening. If you liked what you hear, please subscribe to Portfolio Intelligence on iTunes or visit our website like I said, at jhinvestments.com. Thanks everybody so much for listening to our show. 

 

Disclosure: 

This podcast is being brought to you by John Hancock Investment Management Distributors, LLC, member FINRA, SIPC. The views and opinions expressed in this podcast are those of the speaker, are subject to change as market and other conditions warrant and do not constitute investment advice or a recommendation regarding any specific product or security. There is no guarantee that any investment strategy discussed will be successful or achieve any particular level of results. Any economic or market performance information is historical and is not indicative of future results, and no forecasts are guaranteed. Investing involves risks, including the potential loss of principal. 

 

John Hancock Investment Management and Nancy Steenson are not affiliated and she may have been compensated for her time.

John Bryson: 

Hello and welcome to the Portfolio Intelligence podcast. I'm your host, John Bryson, head of investment consulting at John Hancock Investment Management. As always, the goal of this podcast is to help investment professionals deliver better outcomes for their clients and their practice. Today, we're going to cover a hot topic, the U.S. elections coming up this fall and we've got a great guest on today to help us talk about it. I'm joined today by Thomas Mucha of Wellington Management. Thomas is the geopolitical strategist for Wellington, where he conducts research on the macro and market implications of geopolitical risks with a particular focus on connecting these insights to actionable investment ideas. He's a frequent speaker at Wellington client events and institutional events worldwide. Prior to joining Wellington, Thomas had a very successful career in journalism as a writer, producer, and editor focused on global business, economics, and geopolitics in such publications as Global Post, CNN, Crain Chicago Business, and Time, and Incorporated Business 2.0 Magazine. Thomas, welcome to the show.

Thomas Mucha: 

Hi, John. It's great to be back and I'm really looking forward to the conversation.

John Bryson: Excellent. Let's jump right in. Let's talk about what's going on right now and that's COVID, COVID-19. Tell me how that's impacting the upcoming election, current domestic politics, and really, global relationships.

Thomas Mucha: 

Well, I think it's truly the number one issue, John, given what this crisis is doing to U.S. domestic politics and foreign policy as well to the global backdrop. And first and foremost, it's an historic health crisis. One that's resulted in the deaths so far of 170,000 Americans. That's about fifty-six 9/11s. So regardless of politics and all the noise surrounding the elections, that's a severe crisis by any measure and will likely produce structural changes in how we work, how we live, how we interact domestically and internationally.

Thomas Mucha: 

Second, I think it's significantly damaged President Trump's number one argument for reelection, which is of course, the strong economy. So while he still holds relatively good marks here, the gap with Biden on the economy has narrowed dramatically in recent weeks and months. And they're now running about even on this issue. Third, John, and, and from my geopolitical perspective, this is the most important implication has been the impact on U.S.-China relations. By attempting to deflect blame onto China and making that a central theme of the campaign, the Trump administration is rapidly accelerating a downward shift in U.S.-China relations. Now this great power competition rooted in national security was already happening, but it's now in high gear with an uncertain outcome for U.S.-China relations, U.S. relations with its key allies, greater supply chain, and certainties across a number of key industries.

Thomas Mucha: I think we should expect more differentiated global macro and trade outlooks. And of course, a higher geopolitical risk across the board. Moreover, John, the way this crisis has been handled by governments worldwide with almost no coordination on either the economic impact or the hunt for a virus is what you would expect in a more multipolar world where multinational alliances mean less than stark national interest. And as a result, you see more conflict and less cooperation globally. So from my view, COVID-19, coming when it did, is accelerating the three main structural geopolitical themes that you and I have discussed in the past, a fracturing global order, a rising inequality driving further political dysfunction. And, longer term, a worsening outlook for a coordinated global response to the biggest long-term threat out there, which to my view, is climate change.

John Bryson: We're going to talk more about climate change and China because I think it's certainly issues we have to understand the impact of. So staying with the U.S. elections, can you weigh in on some of the voting patterns and polling patterns that you're seeing and what sort of polls are you looking at to base your analysis?

Thomas Mucha: Sure. So the voting patterns, as well as the polls, indicate an advantage to Biden and the Democrats overall. The patterns to me that are most important and really what we've seen the 2018 midterms include, most importantly, a worsening performance for Trump and the GOP in the key states that he eked out to win in 2016—Michigan, Wisconsin, Pennsylvania. But we're also seeing this now in Florida, Ohio, Arizona, North Carolina, even traditional Republican strongholds like Texas and Georgia. And the changes here I think have been fairly consistent and really structural in each of these states. Trump has lost a lot of support in the suburbs, with women in particular. Now, while we've also seen large voting increases since 2018 in the 18- to 40-year-old demographic, which tends to be strongly democratic. Most importantly, recently we've detected a big shift in support of older Americans away from Trump who really won this group big in 2016 and over to Biden.

Thomas Mucha: And if this holds up, I think that's likely to be a major factor in the states that matter, the swing states, which have a larger proportion of older Americans, places like Florida, Arizona, and across the Midwest. As for the polls, I think it's important to note that polls are snapshots in time. They're not predictions of what's going to happen on November 3. We're still about 75 days out here and I think a lot is going to happen in this unique political climate we're all experiencing. So while Biden is the clear favorite with an increasing probability of a Democratic sweep of Congress, our conviction levels here shouldn't be too high.

Thomas Mucha: Now I tend to focus on the polls in the swing states, which matter more than the national averages given the electoral college system that we have. And as for those sources, those public sources, I follow more reputable polling sites like FiveThirtyEight as well as other professional pollsters, such as Charlie Cook, who has a long track record of success over many decades. But I'm also in periodic contact with members of both the Biden and Trump campaign teams. So I try to glean as much information as I can from their own internal polling data as well, which tends to be more granular and more directly tied to their specific campaign objective. So it's a pretty broad mosaic that I'm paying attention to here.

John Bryson: 

Okay. Really interesting. So if I were to push you to make a prediction, what would you see now as the most likely outcome? Is it a Biden presidency with a Democratic sweep? Like you said, it was where we were trending, or is it some other outcome?

Thomas Mucha: 

Yeah, I think a Biden win with a Democratic sweep of Congress is probably the most likely outcome right now, given the dynamics of the race. Second, would be a Biden win with a split Congress with the GOP maintaining slim control of the Senate. Now either one of these congressional outcomes matters greatly to the direction of policy and therefore it's what we care about here, which are the market implications. And in general, I think progressives should temper their expectations about what lies ahead, even in a blue wave election. I think significant structural change will be very hard to come by given that the Democratic Senate margins will likely be slim and that there are plenty of moderate Democrats in both the House and Senate. So I'd expect more gradual measures and a Biden administration focused largely on economic revitalization and COVID-19 prevention.

Thomas Mucha: 

Other policy issues I'm looking at, infrastructure now with a big emphasis on renewable energy, I think is the likely legislative emphasis right out of the gate as will other climate-related and carbon-reducing measures that can be done by executive order. Things like a U.S. return to the Paris Accord, a ban on oil drilling on federal lands and in the Arctic. And in general, more regulation of the oil and gas sectors in the U.S. with a real focus on environmental and health impacts, including clean air, clean water, and other quality of life measures. So there's a wide variety of outcomes here, but it really is going to come down to those margins in the Senate.

John Bryson: 

So you mentioned kind of the impact on environmental policies and if Biden wins addressing any COVID problems, as soon as possible. What other fiscal, regulatory, and global trade policy differences do you see between Trump and Biden that we should be considering?

Thomas Mucha: 

It really matters who wins this election. It is a cliché, John, that this is the most important election every four years. But from a policy direction, I think it really does matter. And in addition to infrastructure and climate in a Biden administration, I think healthcare is likely to be a priority and specifically policy matters related to COVID resiliency, such as more fiscal spending for hospitals, schools, and other frontline workers. So I don't expect a major overhaul of the U.S. healthcare system under Biden, who is likely to take a more incremental approach. Tax policy, on the other hand, will certainly change. I think we should expect higher corporate rates and higher personal rates for upper income earners. I think that's the direction, but again, all of this will be very much dependent on the makeup of Congress. I think another difference here will be a greater focus on police reform and other social justice issues, probably run from the office of VP Kamala Harris, who has a background in these issues, given her experiences in California as state attorney general prior to joining the Senate.

Thomas Mucha: 

And as for trade, John, I think, we shouldn't expect a major U-turn from Trump in many ways in a Biden administration. Yes, there will be more coordination with allies on China in particular. Yes, there's a potential return to the transpacific partnership. And in general, I'm expecting a more measured use of specific tariffs and trade sanctions, but I do think most people underestimate how pro-union and pro-U.S. worker Biden has been over the years. I think that will continue. And that will be a focus particularly in the industrial Midwest states that are critical to November's election outcomes. So I don't think we should expect to return to full free trade regardless of who wins in November. And we should therefore expect a continuing focus on what future trade deals mean from the U.S. worker perspective.

John Bryson: 

So kind of continuing on this theme of differences, one of the things we've seen recently is U.S. technology leaders have really come under pressure and scrutiny from Congress. How does that play out under the different administrations? How will this impact the power struggle, if you will, that we have with technology, with over technology with China?

Thomas Mucha: 

Yeah, that's a great question. I think we'll certainly see more scrutiny from either side, frankly. The Biden team has indicated a strong preference for more regulation of tech, greater antitrust scrutiny, more oversight of privacy issues and personal data, as well as more questioning about what goes into social media and other algorithms, given the increasing importance and frankly, the widening prominence of artificial intelligence. Biden, for his part, was fairly tough on the tech industry during his time as VP. Harris, meanwhile, has close personal and a lot of fundraising relationships in Silicon Valley given her California background. But more importantly, in my view, is, and you indicated this, the role tech is likely to play in the emerging great power competition with China. Every new advancement in technology now has a dual-use civilian and military application. I think that will be brought to bear as the U.S. and China vie for both military and economic dominance in coming years.

Thomas Mucha: 

So semiconductors, because they're in every defense application you can think of, are at the heart of this, but this extends to next gen communications like 5G, command and control systems, militarization of space applications ranging from satellite communications to hypersonic weapons, to other advanced missile systems and on and on—to robotics, aerospace, autonomous vehicles, and especially artificial intelligence as applied to national security and beyond that, the many important military applications of quantum computing. So I think, John, as a result of all of this, the tech sector more broadly is being seen as a strategic industry in this great power conflict. And so I think that piece of it is important, an important framework for how policymakers will likely view tech and in the long run, it may temper some. Some, but not all of these regulatory concerns.

John Bryson: 

So you think both sides of the aisle recognize the importance of tech. There may be more regulation under Biden, but they both recognize the importance of it and will probably tread lightly. Is that a fair way to think of it?

Thomas Mucha: 

National security is increasingly a bipartisan issue, particularly when it comes to China, and tech is at the center of that.

John Bryson: 

Okay. Great way to summarize it. So I want to go a little bit further on China. Share your general thoughts overall on our relationship with China. And is this challenged relationship, I'll call it, is it good for markets, bad for markets, or are we indifferent?

Thomas Mucha: 

Sure. So, you and I have spoken about this before, but I think from a geopolitical perspective, this is the most important relationship in the world. It has been, and it will be for decades. And the point I'd like to get across here is that there's been a fundamental shift in the way official Washington now views China. The driving factor between the U.S. and China is today, great power competition rooted in these national security issues. I think that's more important than all other factors. And so this shift in emphasis away from economics and trade and towards national security, that's supported by both political parties. It's deepening across the U.S. government beyond the Pentagon and the CIA. And it's now been institutionalized in the new U.S. national security strategy that highlights great power competition as the biggest current strategic threat to the U.S. with, of course, China at the top of that list.

Thomas Mucha: 

Now clearly this shift in defense policy started before the Trump administration. It clearly accelerated during the trade war and is really rapidly worsened in recent months as a result of these domestic political pressures in the U.S., and as I said, that the Trump campaign is working hard to blame China for the COVID-19 crisis. So, I expect the U.S.-China relationship to continue to fracture as we move towards November. And I also expect these geopolitical and policy frictions to continue, regardless of what happens in November. And this is mirrored by the legislative backdrop as well. There are some 270 bills on Capitol Hill right now that target China in one form or another. So that backdrop now looks a lot like the national security backdrop in the U.S. So again, this is bipartisan, this is structural. This is likely to be long term.

Thomas Mucha: 

And at the geopolitical level, I think we should also expect continuing friction in the U.S.-China relationship broadly. And that to me is a negative for a geopolitical risk globally as these two powers fail to coordinate or cooperate on a variety of issues. The most immediate flash points that come up most in my discussions in DC continue to be the South and East China Seas, North Korea, Hong Kong, and especially Taiwan, which remains the deepest concern for U.S. military planners in Washington. I think the most likely risk right now is a military accident in one of these hotspots that spirals out of control, given the poor bilateral relationship, the political climates in both countries, a rising nationalism as a response to the COVID crisis. And probably, most important, John, the fact that almost all strategic contact between Washington and Beijing is essentially nonexistent at the moment. So while I'm not predicting war, this is a very precarious moment for the world's most important bilateral relationship. And I think it deserves our full attention.

John Bryson: 

Clearly. And if you think this through, one last question I want to ask you on China, do you feel that Trump and Biden will approach it differently? And what will be one approach versus the other?

Thomas Mucha: 

Yeah. So in sum, under let's view the Biden scenario for a second. In sum, there, I expect a more professional and frankly, more predictable management of U.S.-China relations as the Biden team will prioritize that diplomacy over the widespread use of tariffs. In particular, they will work more closely with allies. They will return to the WTO and other economic institutions, including a potential return to the Trans-Pacific partnership. Although one, there then emphasizes not so much trade, but competition with China. And this means there'll be a huge focus at the State Department. There'll be a big attempt to lure back many of the professional diplomats who left or who were driven out by the Trump administration. So I think the U.S.-China relationship under Biden likely gets marginally better. And we step back from the brink a little bit, but in no way, does that mean the frictions end. These great power competition issues are likely to be with us for years, regardless of who's sitting in the White House. They are structural, they are long term, they are real.

Thomas Mucha: 

And more specifically, the Biden team is very likely to emphasize human rights and democracy as bigger parts of U.S. foreign policy, which makes Hong Kong, Xinjiang and the weaker policy, and especially Taiwan, continuing hotspots and real points of friction in the U.S.-China relationship. Now, if we do get Trump 2.0, I won't spend too much time on this because I think we've already seen what he wants to accomplish. I think we should expect more friction with China, particularly if the bash China's strategy works to get him reelected, I would expect continuing pressure on U.S. alliances, poor diplomatic relationships in Europe and elsewhere, continuing deterioration of U.S. global influence, and even a higher degree of political polarization and dysfunction inside the U.S. And of course, no movement on climate change, which to me is the biggest long-term threat to both a national security and the U.S. economy. And John, it's one that the Pentagon and the CIA, climate change has put at the top of their worry list, really, for a long time.

John Bryson: 

Let's talk about that. You're passionate about climate change. You've written about this quite a bit. It's not the topic of the day, if you will. It has been in the recent past, and it sounds like you think it will be again in the future. How does policy vary under Biden versus Trump, and how do you view climate change from an investment perspective and how should people prepare for a longer-term impact?

Thomas Mucha: 

Sure. So I think the approach to climate change will be very different in those two scenarios. I think that the Biden team will make climate change a real priority. Again, through that infrastructure lens at first. That will be the best way to get the economy kick-started again, but a real emphasis on renewable energy in particular. So I think that'll be a priority. It's the priority of the Democrats across the board. There are already several bills written in Congress just waiting for a Democratic signature to happen. So I think that's going to be a real priority in the Biden administration. Again, Trump, I don't think that'll be a priority at all.

Thomas Mucha: 

As from the investment perspective, John, to me, this is the most important long-term consideration for markets. You may know that Wellington has a close and proprietary research relationship with the Woods Hole Research Center, recently named the Woodwell Center for Climate Change. This group is consistently rated as the top climate science research team in the world. It's led by former White House climate advisor Phil Duffy. They've got dozens of the world's top climate scientists on staff. What this means from my perspective is that, we get suspended an hour a week with these folks and we get to incorporate their best thinking, their latest science into our various investment strategies. We do this systematically and without politics and by specific climate variables.

Thomas Mucha: 

So we look at temperature, droughts, wildfires, sea level rise, hurricanes, water scarcity, and the like, and it's a particular interest to my geopolitical risk analysis. As I said, the Pentagon and CIA have really made this a long-term issue, given the disruptions that are likely to intensify as a result of a warming planet. But from a specific investment perspective, what I've taken away from this is very simple. The climate is changing rapidly, and even if we took global carbon emissions to zero tomorrow, we would still see decades of warming based on the physics of climate science and the lingering effects of so much CO2 in the atmosphere. So that leads me to the idea of adaptation. I think humans will do whatever it takes to cope with these more difficult living conditions, including adapting to warmer temperatures, more storms, more coastal and inland flooding, droughts, and everything else that the science is pointing to. And again, this is global. It's not just one country, this is going to happen everywhere.

Thomas Mucha: 

So one of the strategies that I've been developing is tied directly to this idea. In sum, we've identified global companies that produce 50% of their revenues from an adaptation to one of these specific climate variables. So air conditioning, cooling, and others for rising temperatures, for example, dredging and engineering, water management and irrigation technologies for coastal flooding and water scarcity, specific biotech companies, and others that we'll see demand increases due to health-related climate impacts and so on.

Thomas Mucha: 

There's a lot of ways to view this, but I found that this adaptation approach is a great way to both conceptualize the practical investment implications of this long-term trend, but more importantly, to apply a degree of investment rigor to the approach and critically tie it to the actual science. So it may not be the focus, the immediate focus right now, but I think over the long range on this is one of the biggest factors that we as investors really need to get a handle on.

John Bryson: 

Okay. So if I would ask you to tie together what I would call the short-term market implications of changing the guard, if it goes over to Biden, the medium-term challenges that will continue with China and the long-term challenges of the environmental issues, if we don't address them. How would you tell people to be positioning their portfolios like a global portfolio? What would your thoughts be?

Thomas Mucha: 

Sure. So in the short term, you want to take a much more sector-centric approach to sectors that might come under pressure, given a changing of the guard, as you put it. So more pressure on traditional energy companies, for example. That's one thing I would look at. Over the medium term and over the long term, I really think focusing on these big structural changes in geopolitics is the way to think about this, and that really leads you to more thematic investing strategies. And so again, one of the things that I try to do is look at these long-term structural changes in the global order and what are the behavioral changes that this is producing. And one example of that, as the U.S.-China relationship continues to evolve much more focused, much more investment focus on changes in defense spending, and in particular, these dual use civilian military applications.

Thomas Mucha: 

I think there'll be the creation of all sorts of national champions across these industries in a variety of countries. And I think it's important to note that traditionally a great power competition has actually been a market positive. I know it sounds counterintuitive, but it does create more favorable fiscal and monetary backdrops for the most part. And it's the national champions aspect of it. We'll create all sorts of investment opportunities globally. And then over the long run again, I think it's really thinking about climate change and really thinking through what are the wide-ranging implications here on a regional basis, on a country basis, on an asset class basis, and on a specific company basis. So, we have a lot of work ahead, but, but I really strongly encourage investors to think about these long-term structural changes. That's far more important than individuals in politics.

John Bryson: 

That's great. I love your analogy around national champions. It's the struggle period that we have to get through if we want to get better—and the best do get better. Thomas, it's always great to talk with you. It's clear to me, you and the folks at Wellington are thinking two, three, four steps ahead. And I love that. Thanks so much for being on the show. I very much appreciate it.

Thomas Mucha: 

John, it was my pleasure and best of luck to you and everyone else out there.

John Bryson: 

All right. Folks, thanks for listening in. If you want to hear more, please subscribe to the Portfolio Intelligence podcast on iTunes or visit our website, jhinvestments.com to read our viewpoint on macro trends, portfolio construction techniques, business-building ideas, and much, much more. Thanks so much for listening to the show.

 

Disclosure: 

This podcast is being brought to you by John Hancock Investment Management Distributors, LLC, member FINRA,SIPC. The views and opinions expressed in this podcast are those of the speaker, are subject to change as market and other conditions warrant and do not constitute investment advice or a recommendation regarding any specific product or security. There is no guarantee that any investment strategy discussed will be successful or achieve any particular level of results. Any economic or market performance information is historical and is not indicative of future results, and no forecasts are guaranteed. Investing involves risks, including the potential loss of principal.