Allocations to U.S. equities rise, but some planners urge caution

Advisers sharply increased allocations of client assets to U.S. equities, but some planners are cautioning against piling into a market where they see valuations as being too high.

Allocations to U.S. and international bonds slipped to levels not seen in a year, while those to U.S. equities reached a level not seen since April, according to the latest edition of the Global Asset Allocation Tracker. Allocations to global equities increased slightly, according to the tracker, which surveyed 302 advisers.

S&P 500 stocks strapped with the most net debt dropped 5% this year.
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Friday, Sept. 30, 2016. U.S. stocks advanced as Deutsche Bank AG erased losses in German trading and European shares pared declines, easing concerns that turmoil in the banking industry could spread. Photographer: Michael Nagle/Bloomberg

Advisers say the shifts in asset allocations were motivated by post-election expectations of changes in the tax code that would benefit wealthy Americans, an increase in interest rates and the possibility of new stimulus under President-elect Trump’s proposed infrastructure program.

“With the surprise election result, we think there will be a Trump bump over the next few months,” a wealth manager says.

Client risk tolerance has risen markedly since the election, advisers report. A broker, pointing to clients’ expectations, had a succinct explanation: “Bull market, baby.”

Global Asset Allocation Tracker January edition

Planners also said they pulled back on global equities for fear of protectionist policies being put in place in the U.S. and other countries. But other advisers expressed caution on increasing allocations to U.S. stocks, citing the risk of trade wars as well.

“Relative value for equities seems more favorable in Europe and is starting to look more interesting in emerging markets,” an adviser says.

A wealth manager says recent investor reactions are “too much of a knee-jerk reaction.”

Another adviser points to human psychology: “People want to chase gains.”

Investment insights Portfolio diversity Portfolio management Fixed income Bonds Equities Stocks Global investing