Given Asset Allocator deals in diversified multi-asset portfolios, it would be unfair to suggest that if the US equity market ever sneezes, DFMs would be liable to catch a cold.
That said, some are more exposed to the Land of the Free than others.
Last time we checked in with Julian Howard, Gam’s head of multi-asset, he was particularly bullish on the region despite the spectre of volatility on the horizon.
This time around, he’s tweaked exposure to rein in their overweight to US equities in favour of weightings that more closely resemble the MSCI World.
“America itself was feeling quite stretched, and there was a huge amount of noise coming out of the Trump administration,” he said. “It was becoming very difficult to get any clarity in the short or even the medium term.”
Their 100 per cent equity sleeve has shaved around 2 percentage points from their US exposure to hit 67 per cent in US equities — more or less identical to a global market-cap tracker.
What Gam does with its US exposure is particularly key given that 36 per cent of its balanced proposition is centralised around US equities, significantly higher than our allocator average of 17 per cent.
This has now dropped by around a percentage point to 35 per cent, with the proceeds recycled into European equities.
Howard explained why the US is so compelling in our recent podcast: he believes US companies have the best management, superior return on equity, better liquidity and better defensive properties than the rest of the world.
For these reasons, Gam’s large exposure to the US will always be a structural one in their portfolios. But sentiment has nonetheless cooled.
“There’s no prize for being overweight right now,” he added.
“Europe is far from perfect, but it is really cheap.”
European stocks have made a strong start to the year (albeit from a rather battered base) and speculation surrounding the outcome of the war in Ukraine is cited by some commentators as reasons behind the shift.
Howard does not subscribe to the idea of the ‘peace dividend’ — the idea that an end to the fighting will benefit European companies that have contended with higher fuel prices since 2022.
“Europeans would welcome lower energy prices, but there are other things that are contributing to lack of competitiveness in European equities,” he said.
“When you compare with America the infrastructure, the productivity, the availability of technology, the fragmentation of its capital markets — I think there’s more upside in Europe opening up its fiscal rules, versus any dividend around slightly lower natural gas prices in the future.”
