Aviva Investors’ multi-asset head has cut his US exposure to an underweight position in all of his eight portfolios for the first time in two years.
Peter Fitzgerald, who runs Aviva Investors’ five-strong multi-asset range and three-strong multi-manager suite, has decided to reduce his exposure to the world’s largest economy as its recovery gathers strength.
The US market performed strongly last year and its economy is considered to be well on its way to full health. Last month markets were hanging on every word of Federal Reserve chairwoman Janet Yellen.
Speaking before a Senate committee, Ms Yellen said any change in language from now on “should be understood as reflecting the committee’s judgment that conditions have improved to the point where it will soon be the case that a change in the target range could be warranted at any meeting”.
The comments came as unemployment in the US fell to 5.7 per cent, down from more than 10 per cent, a factor that has always been deemed important amid discussions about when to raise rates.
She said the central bank’s Federal Open Markets Committee would start to alter monetary policy when it was “reasonably confident” inflation would move back towards 2 per cent, which is the committee’s target.
Mr Fitzgerald’s move follows on from a strong performance by the US stockmarket, which has been on an upward trajectory for the past five years.
The S&P 500 index has risen 201 per cent in sterling terms since the start of March 2009, well above the MSCI AC World’s 152 per cent and the MSCI AC Europe’s 122 per cent, according to data from FE Analytics.
It is this rise in the US stockmarket that has prompted the multi-manager to consider his weighting.
“The US market is doing well, but what investors need now is for it to do exceptionally well,” he said.
There is also the headwind of the strengthening dollar. This has the knock-on effect of reducing the profits made by US companies when they are converted to sterling.
Elsewhere, Mr Fitzgerald said a real challenge for him and his team was how to allocate to bonds, given their relative value against equities was challenged. This disparity became starker last month after Finland auctioned a five-year bond at a negative yield, a first for a eurozone country.
Germany has also seen its two-year and five-year bonds begin trading at negative yields in the secondary market, after investors flocked to the debt in the wake of the announcement about quantitative easing in the eurozone. This will see the European Central Bank buying up government debt.
“Fixed income has very low yields so it is going to be hard to benefit from the hedge you generally use it for,” the manager said.
Given the high prices of many government bonds, the manager is keeping his powder dry in some of his funds, with as much as nearly 11 per cent in cash in one of his multi-manager funds.
