Peter Elston, who runs the £78.9m Seneca Global Income and Growth Investment Trust, said he has long been wary of the investment case for US equities, but recently reduced his exposure to the sector to zero.
His view is based on a macro stance that economies move in cycles from recovery to expansion to peak, and that policy makers begin to put interest rates up at the “expansion”, but that this doesn’t impact equities.
However when an economic recovery is in the “peak” and interest rates have been rising for a prolonged period of time, equities tend to perform poorly.
Mr Elston said the US is the only developed economy in the “peak” phase, where equity valuations are high and interest rates have been rising for a period of time.
On that basis, he believes an equity bear market will happen sooner in the US than elsewhere.
James Sullivan, who runs the £60m Coram Global Balanced fund is another investor who has reduced his exposure to US equities to zero.
He said there is a lot of “optimism” priced into US earnings expectations, despite the aggregate profit margins of US listed companies falling by 20 per cent in 2015.
Mr Sullivan said the 15 year average valuation of the market is 17 times earnings, and the current valuation is 21 times.
“It’s not ridiculously expensive, but we’re finding better value elsewhere – notably in Japan, Asia and domestic UK,” he said.
Simon Evan-Cook, multi-asset fund manager at Premier, has been adopting an “America Last” approach to equities, having less exposure to the US than every other major equity asset class.
He said: “Every US company is not expensive, not a bad investment, but the average, median company is more expensive in the US than it is elsewhere, so we have US exposure to funds such as the £597m Baillie Gifford American fund, which only invests in the best US companies, not the median ones.”
A dissenting voice comes from Simon Edelsten, who runs the £150m Mid Wynd Investment Trust.
He doesn't think the US market is particularly expensive.
"What has happened is the areas of the world where the growth is happening, such as technology, are a big part of the US market, so their valuations have gone up.
"In contrast, the areas where growth has been hard to come by, such as banks, are a big part of the European index, which has little technology on it, so the valuations have been lower.”