Kevin Anderson, State Street Global Advisors
“What we’ve done more recently is reduced our positions in Europe, which is slightly underweight tactically, and we’ve also reduced our position in Japan, while we retained the position in US large caps,” Anderson told FSA.
Anderson’s asset allocation views are reflected in the firm’s multi-asset portfolios and over- and under-weights are relative to a clients’ strategic policy allocation.
His views largely differ from the first half of last year, when his biggest overweights were in European and Japanese equities. At the time, the firm had reduced exposure to US equities to neutral.
Concerns over the slowdown in growth in Europe and political headwinds have made Anderson more cautious about the region.
“Growth was pretty strong in 2017, but momentum has slowed for sure, especially when we look at the purchasing managers indices.” Additionally, he believes that the rising political tensions in Italy has negatively affected investor sentiment toward Europe.
Turning to emerging markets, the US dollar has prompted the firm to reduce allocation, although it is now “small overweight”, Anderson said. “We are seeing a stronger US dollar, which brings some headwinds for emerging markets.”
Although earnings momentum in emerging markets is still strong, investors are now seeing a gap between emerging markets and US earnings. “We are seeing stellar earnings in the US, principally driven by the impact of tax cuts,” he said.
Year-to-date the US equity market has outperformed the major global equity markets, with the S&P 500 Index returning 4%, while the other major indices have performed negatively, according to FE data.
US views split
In terms of sectors, Anderson favours global banks and other financial companies as they benefit from a rising rate environment. He also likes technology stocks in the US, but in the “less crowded” parts of the sector.
“We like some of the tech innovators, but the so-called Fangs are a very crowded space at the moment,” Anderson said.
On the flipside, he is more cautious about utilities, which investors usually see as a defensive sector.
“We would be much more cautious about looking at utilities, because they are very highly correlated in a negative way to interest rates. As interest rates rise, utilities tends to underperform.”
Like Anderson, Colin Graham, Singapore-based chief investment officer for multi-asset solutions at Eastspring Investments, told FSA recently that his favourite equity market is the US.
However, other portfolio managers and private bankers have cited the high valuations and the strengthening US dollar as reasons for being neutral or underweight on US stocks.
For example, Roger Bacon, Asia-Pacific head of investments at Citi Private Bank, has become wary of US equities because of high valuations. Vince Rivers, a fund manager at JO Hambro, prefers US small- and mid-cap stocks. Although their valuations are in general higher than large caps, they have outpaced large-cap stocks in terms of earnings growth.
