Legal & General Investment Management has cut its asset allocation to US equities following the asset class’ recent strength, while weightings to the eurozone.
In its latest asset allocation update, the firm has changed its stance on US equities from overweight to underweight, while setting an overweight view on European stocks.
In an investment note, L&GIM says: “The dominant reason for the cut to US equities was that the superior economic performance appears more than adequately priced in.”
US equities have rallied strongly since the start of the year as investors became more assured about the recovery of the world’s largest economy. The S&P 500, for example, is up more than 20 per cent over the year to date.
Despite US companies showing boosted profitability and better growth being seen in other developed markets, L&GIM regards the US equities space as a low beta market and says it has less earnings gearing into a global economic recovery.
L&GIM’s note adds: “The risk/reward ratio of eurozone equities is deemed more attractive, hence the upgrade. They are also seen as likely to benefit from a greater earnings rebound than the US based on lower starting margins, less labour cost pressure, higher operating leverage and a bigger improvement in sales-weighted GDP growth.”
Citing positive factors for European equities, the firm highlights a more supportive stance from policymakers and the view that the region appears to be moving from recession to “modest” growth.
L&GIM also has an overweight view on UK and Japanese equities a neutral stance on emerging market equities, bonds and cash.