A third of fund buyers plan to reduce their allocation to US equities and only 15% plan an increase, meaning it is now the third least popular asset class after developed market government and corporate bonds. Optimism is also short in supply among fund managers, with return expectations tilted towards the negative.
High-yield bonds – demand evaporates
Appetite for high-yield bonds has also fallen. That is hardly surprising considering the bulk of high-yield bonds are US-listed and correlate strongly with local equities.
High-yield bonds were the most popular asset class in the first quarter of 2017, with net inflows of more than €4bn for three consecutive months, but investors are now realising the party may be nearing its end.
Over the course of the Trump rally, high-yield bond spreads have fallen below their long-term average, and so has sentiment towards the asset class.
Aggregate sentiment has turned from positive to negative, meaning there are now more sellers than buyers, and appetite is as low as it has been since the end of 2014.