Many asset management companies are adjusting their client’s portfolios to get the best out of the current trend which sees the U.S. stock market outperforming the global market for the first time during this decade. Moreover, U.S. exposure to the emerging market has declined, while exposure to U.S. stocks has climbed.
As on 6 August, Standard & Poor’s 500 stock index was down by 11.1 percent year-to-date. For the same period the MSCI EAFE, an indicator of foreign stocks taken from the North American investor’s perspective, was down by 14.52 percent. Some traders began to minimize their exposure to foreign markets towards the end of 2007, when they noted that overseas markets were starting to under-perform. Chief investment officer of Chicago-based Harris Private Bank noted that they are “either neutral or slightly below neutral” in their international exposure, which is a complete turn around compared to a year ago.
While some asset managers are rearranging their client’s portfolios, possibly leaning toward domestic stock, this is not the case for everyone. President of Global Trends Investments in Newport Beach, California, Tom Lydon, notes that investing in any market at the moment is not appealing. Lydon points out that an analysis of all global and domestic stocks reveals that the majority are “still trading substantially below their 200-day average.” With his firm managing $75 million in assets, Lydon has moved the portfolios for his clients to 80% cash, retaining very little exposure to stocks.
President of Mayflower Capital in Los Altos, California, Don Martin notes that the market appears to be in transition and timing the market can prove tricky. He believes that investors should look at the percentage of the global market that the U.S. represents. If the U.S. market represents 40 percent, then an investor’s portfolio should include 40 percent in U.S. stocks.
Senior economist and market strategist at Jersey City-based Lord Abbett & Co, Milton Ezrati says that they advise clients not to “leap from one asset class to another.” He does believe, however, that there is a strong possibility that overseas markets could overtake U.S. markets and investors should “brace themselves” for this eventuality.
Many are of the opinion that the extreme difficulties the U.S. market has been dealing with will soon be over. With Europe and Asia just starting to enter into a period of slowing down, there is the likelihood that U.S. markets will recover more rapidly than they do. Additionally large-cap stocks, which are mainly global brands, are expected to attract non-U.S. investors and should, in the long run, prosper. Currently though, small-cap stocks are providing the best short term returns.
