Dan Coatsworth, investment analyst at AJ Bell, comments: “The big rotation from the US to cheaper regions such as the UK, Europe and emerging markets may have peaked, judging by what fund managers are saying around the world. “Trades are being unwound, and the US is acting like a giant magnet, pulling investors back into big tech. The danger is that professional investors are piling back into richly valued shares that are vulnerable to sharp declines if we get another market shock.
“The BofA’s survey provides a finger on the pulse of the asset management industry, providing insights into how professionals are positioning portfolios. The latest survey implies that the value trade that’s helped to drive up markets across Europe might run out of steam amid few active buyers.
“The UK and mainland Europe have delivered strong gains this year, and fund managers might simply be locking in profits while the going is good. Going back to the old hunting ground of the US, historically a land of big investment returns, is not a guaranteed slam dunk. The Trump administration’s policies have been divisive and a stark reminder of the need for geographic diversification in an investment portfolio.
“The UK market might have enjoyed one of its best years in ages, yet it still has the backdrop of waning public confidence in the government and a market full of defensive-style stocks. If investors have regained their risk appetite, the UK’s stock menu isn’t tasty enough for what they want to feast on. The lack of go-go-growth stocks could leave the UK on the sidelines. That would be a crying shame, given how it is still full of interesting businesses that simply move at a slower pace.”
Ryan Hughes, AJ Bell Investments managing director, comments: “The US is not without its challenges and while some investors may be looking back across the pond, we remain comfortable having exposure to the UK, Europe as well as Asia in our AJ Bell investment portfolios. Performance across the world this year has been strong, with the S&P 500 currently lagging other markets for UK investors but valuations away from the US still look appealing. Price to earnings ratios do not seem excessively elevated. For example, China continues to trade at just over 10 times earnings while markets like the UK and Europe also trade at sensible levels. Political noise in developed markets can’t be dismissed but it’s important to remember that many companies continue to grow profits and dividend streams regardless of the political uncertainty and as a result, we remain comfortable with our exposures away from the US.”
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