Will Bartleet, CIO and Portfolio Manager of Pacific Multi-Asset
US investors could be forgiven for putting America first in their asset allocation over the last seven years. US stocks gained over 130% from the end of 2009 to the end of 2016, whilst the rest of the developed world rose less than 30% and emerging markets only managed to return 6% in dollar terms.
American equities have had a lot going for them: a hugely supportive central bank, the strongest recovery of the large developed economies, high and growing margins and a vast buyer of equities – the companies themselves - issuing debt to buy back shares. These elements have all contributed to stronger earnings growth than was available elsewhere. In addition, global investors have been willing to attribute higher valuations to capture these earnings, further boosting share prices.
Despite the arrival of a heavily pro-business President, many of these benefits are starting to wane: The Federal Reserve is starting to raise rates, other economies are starting to grow faster, margins are coming off their peak and buybacks are slowing. We believe these trends are likely to continue, and with equities outside the US trading at more attractive valuations, we are increasingly shifting our equity allocations elsewhere.
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