According to Morningstar fund flows data, European investors have committed a net €11bn to US equities since Trump got elected. High yield bonds, an asset class with a large exposure to the US economy, also saw net inflows in excess of €4bn in both December and January.
ETF provider WisdomTree noted that the January flows into its 3x Long S&P 500 leveraged ETF surpassed total net flows in (leveraged and short) US equity ETPs for the whole of 2016. “Investors continued to position bullishly around Trump and US equities in January, with expectations hinging around Trump offering more details on proposed corporate tax cuts, infrastructure spending and regulation reform,” he said. “All of which would provide another shot in the arm for US equities.”
Alessandro Viviani (pictured), a fund analyst at Old Mutual Wealth in Milan, is siding with the bulls. “Within our model portfolios, more than half of our total equity exposure is invested in US equities,” he says. “We prefer value, and on top of that we have a single sector exposure in healthcare since Trump’s Obamacare reform could broaden healthcare access.”
Thomas Romig, head of multi-asset at Assenagon in Frankfurt, has taken fresh exposure to value as well. “We added to our Legg Mason Clearbridge Aggressive Growth holding and bought the Edmond de Rothschild US Value & Yield fund.”
Expectations-led rally
However, the recent rally has been led by expectations and is not underpinned by stronger earnings growth. Valuations have therefore started to look even more stretched than they already did. Interestingly, this makes asset managers, who have a natural tendency to consider a glass half full rather than half empty, cautious. As Expert Investor reported yesterday, fund manager sentiment regarding US equities is much lower than for European and Japanese equities which are experiencing earnings upgrades.
“Equity markets are clearly saying that President Trump is good for corporate profits. Markets are expecting a fiscal boost from the new president, which will drive an increase in corporate profitability and earnings,” says Mark Burgess, global head of equities at Columbia Threadneedle.
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