Trump's tariffs prompting some U.S. fund managers to look overseas

Global Stock Markets

President Donald Trump’s announcement of import tariffs, and the prospect of retaliation by other countries, is prompting some fund managers to pare their holdings of U.S. stocks and look for opportunities overseas. 

The high turnover of key staff in the White House, including the exit of Gary Cohn, the director of the National Economic Council this week is undermining confidence in policy making also. 

President Trump said Thursday that he would begin imposing import tariffs of 25 percent on steel and 10 percent on aluminum in 15 days, sparking fears of a global trade war. 

Gary Cohn, the chief economic adviser to Trump, who argued against trade protectionism, resigned late Tuesday after Trump first announced the tariff plan and his successor has yet to be named. 

Fund managers from Oppenheimer, Federated, and Wells Fargo are among those that now see international and emerging market equities as more attractive than the U.S., where the prospect of higher interest rates contributed to a slump in stocks in February, leaving the benchmark S&P 500 stock index up about 2.0 percent for the year-to-date, after turning in a 7.0 percent gain in January. 

Overseas stocks, by comparison, are benefiting from synchronized economic growth in both Europe, Asia and the Americas, but offer lower valuations. 

The gross domestic product of countries in the eurozone, for example, expanded at a 2.7 percent annual rate in the fourth quarter, outpacing the 2.5 percent gain in the U.S. economy over the same time. 

The Stoxx 600, an index of companies in the eurozone, trades at a trailing price to earnings ratio of 14.9, compared with a 22.7 P/E ratio for the S&P 500, according to Thomson Reuters data. 

Emerging markets such as China and Russia also look attractive given their prospects for economic growth and low equity valuations, he said. 

In the U.S., meanwhile, a Democratic party takeover of at least one branch of Congress in elections in November would bring more stability to Washington by curbing President Trump’s ability to expand protectionist policies, he said. 

Overall, U.S. fund managers have been reducing their stake in domestic stocks as interest rates rise, making bonds more attractive. 

U.S. balanced funds, which hold both equities and bonds, now have an average of 55 percent of their assets in stocks, a 4.0 percent decline from 2014, and nearly 41 percent of their assets in bonds, according to Lipper data. 

Yet Ashwin Alankar, head of global asset allocation at Janus Henderson Investors, said that he remains a fan of large-capitalization U.S. stocks despite the likelihood of higher trade costs and inflation. 

The recently-passed U.S. corporate tax cuts provide on-going fiscal stimulus that should balance out higher interest rates, he said, a boost to stock prices that is not found in other markets.