The Trump Effect and bond divergence are two major themes for markets, David Vickers has said.
The senior portfolio manager of the Russell Investments Multi-Asset Growth Strategy fund, said the expectation of Trump's policies being enacted had rotated investor sentiment into a 'risk-on' position.
"Equity markets have rallied and bond yields have risen," he said. "US equity valuations are stretched, the market is overbought and the bond market sell-off has been overdone. Therefore a market pull-back should present a viable opportunity to add risk exposure to portfolios."
But he added President Trump may struggle to follow through with his rhetoric, and that high labour costs and interest rate rises also represent a risk to optimism.
He added that divergence remained a major theme for the bond markets, with the Bank of Japan keeping yields close to zero, and the European Central Bank continuing with its programme of quantitative easing.
"Most of our sentiment indicators tell us that the US Treasury market is oversold after the big rise in yields. This means that there is a chance that yields could decline if there is disappointing news on growth, or if protectionist actions by President Trump trigger a risk-off phase for markets," he said.
But he said that in the medium term, yields of US government bonds were likely to trend upward.
Mr Vickers said he retains a balanced view towards emerging markets, with China making gains towards stabilising its economy.
"There is the risk of the Trump administration pursuing an aggressive protectionist agenda," he said. "Our approach – as with many asset classes – is to maintain patience until a pullback from current levels creates an opportunity to build exposure to the portfolio."
Russell Investments has increased the defensive exposure in the fund in the last year, with credit the largest broad asset class by exposure. The fund also had a derivative strategy to protect value if markets fall.
Finally Mr Vickers said that he does not expect the 30 year bond bull run to be repeated.
"Yields have ventured into negative territory, and as rates are expected to rise from here on out, it is unlikely that positive returns will be generated purely from maintaining exposure to duration alone," he said.
