The pivot comes despite signs of recovery in US equities following their April lows. The S&P 500, which dipped below 5,000 points on 8 April, is now down just 0.45 per cent year to date. Meanwhile, the Nasdaq Composite has edged towards bull territory, buoyed by a favourable outcome from recent US-China talks.
Earlier this month, as markets rebounded, Sam Ruiz, global equity portfolio specialist at T. Rowe Price, confirmed the global fund manager had been trimming its US equity and mega-cap tech exposure in response to shifting market dynamics and rising uncertainty.
Already underweight US equities, T. Rowe Price is now leaning towards Europe and select emerging markets to capture growth.
At Morningstar’s recent annual investment conference, GQG’s chief investment officer, Rajiv Jain, echoed that sentiment, saying the firm had become “far more cautious” and was taking a defensive stance on tech.
“We are as underweight as we were in late 2021, early 2022,” Jain said, citing concerns about earnings pressure from tariffs and the fading of post-COVID-19 tailwinds for many US companies.
Similarly, JP Morgan Asset Management’s global market strategist, Kerry Craig, said he views the current volatility as a chance to diversify beyond the US. While he described the move as more of a “rebalance” than a retreat, he added: “We would be neutral on the US right now.”
AMP chief economist Shane Oliver said fund managers are increasingly alert to “bigger-picture concerns”.
“You could argue we’ve had this shock. It turned out to be a lot bigger than expected. Trump has been a lot more erratic in his policy making. There’s concern that there’s less or no adults in the room … And that combined with all these other things, particularly the concern that started to arise back in April that the US may be losing its safe haven status, that the Trump administration is not prepared to support long-term dollar strength, that US exceptionalism might be on the wane," Oliver said on the recent Relative Return Insider podcast.
“All these sorts of things I think are playing into it."
He noted the recent rally in equities is likely being used by fund managers as an opportunity to reduce long-term US exposure.
Among the issues weighing on investors’ minds is the sustainability of US debt, with Moody’s rating agency dropping the US government’s credit score by one notch from Aaa to Aa1 earlier this month.
“This has been a long-term issue,” Oliver said. “The budget deficit is still massive and the concern has come up again, particularly with Moody’s downgrading the US. When you put all those things together, you can see where some of these fund managers are coming from.”
Some of these concerns, the chief economist said, are being reflected in the US dollar.
“Normally, when there’s worries about things like with tariffs or whatever, the US dollar goes up because of the uncertainty … This time around, it’s not so much happening,” he said.
“The US dollar has gone down, which suggests that global investors may be less confident to put their money in the US now.”
As for whether US exceptionalism has run its course, Oliver said: “It’s a serious risk.”
Despite the country’s innovation edge, he warned the US share market may be entering a period of underperformance, drawing parallels to past cycles such as the post-2000 bear market and the 1970s, when the US lagged other global markets, including Australia.
“We do go through those periods. Even though the US is great at innovation,” Oliver said.
“The way I would see it is the US has had a long run of outperformance in recent times relative to other markets. I think it went from about 50 per cent of the MSCI to almost as high as 70, 75 per cent. And now it is at risk of going through a period of underperformance.”
To hear more from Shane Oliver, click here.
