Talking Point 

Advisers recommend US large-cap stocks amid trade war fears

Advisers recommend US large-cap stocks amid trade war fears

More than half of advisers think investing in large-cap US equities is the best strategy to protect their clients' portfolios from growing trade tensions, according to the latest FTAdviser Talking Point poll. 

The poll asked advisers: "How should clients be positioned in US equities against the backdrop of the trade war with China?"

Some 62 per cent of advisers said their clients should invest in large-cap companies. 

Almost one third (31 per cent) of advisers recommended their clients to invest in small and mid-sized cap stocks. 

Only 7 per cent of advisers said their clients should have no exposure to US equities at all.

Not a single adviser recommended their clients to invest in US tech stocks. 

A mid-cap is a company with a market capitalisation between $2-$10bn (£1.5-£7.6bn) and a large-cap is any company that has a market valuation of more than $10bn. 

Jason Hollands, managing director of business development and communications at Tilney Investment Management, said: "Large-cap stocks represent around 75 per cent of the total US equity universe by market capitalisation and many advisers use S&P 500 tracker funds for US equity exposure. 

"So it comes and no surprise that most have indicated a preference for owning large-cap US stocks as this is effectively the default position."

Trade tensions between the world’s two largest economies have been bubbling on since last year although the countries reached a truce and held talks in January this year. Further discussions will resume next week. 

Paras Anand, head of Asia-Pacific asset management at Fidelity International, said: "A détente between the US and China on global trade should be welcomed but investors would be wise not to attach too much significance to it in the context of the future direction of markets."

Ricky Chan, director and chartered financial planner at IFS Wealth and Pensions, said he was surprised by some of the respondents saying they wanted to have no exposure to the US. 

But he shared the view that advisers would not recommend tech stocks, saying they prefer a more diversified approach to investing. 

He added: "So this means that either they leave those decisions down to the active fund managers or, for advocates of passive funds, simply invest according to indices – both options may well include tech stocks but are not directly [down] to the financial planner’s decision."

But Mr Hollands flagged that advisers may be reluctant to recommend US equities because of fears of a recession rather than due to trade tensions. 

Last month, the US yield curve inverted for the first time since 2007. The curve indicates return on yield for bonds with different maturities. 

An inverted yield curve has been a bellwether for predicting every economic recession since World War Two.

Mr Hollands said: "If the US economy can keep growing until June, the current expansion phase will be the longest on record [but] everyone knows that nothing lasts forever and there are signs of slowing growth including a softening of US factory orders."