At Neuberger Berman’s last asset allocation committee of the year, over a month after President Trump’s stunning victory, the group collectively decided to make a renewed push into US equities, despite having moved slightly underweight in the asset class in October.
While Knutzen said he remains somewhat sceptical of the earnings growth potential of certain companies, he has a “high conviction around the general reflation trade” on a 12-month view.
As others have echoed, he thinks that any version of Trump’s proposed tax cuts will benefit smaller, domestically geared companies, many of which have “sound business models,” but have suffered from a stock standpoint over the last five to seven years. Conversely, higher rates will jeopardise lower quality companies that have survived off the back of super cheap financing.
But the Neuberger committee is “modestly overweight” and “not all in” when it comes to US equities because they believe President Trump will continue to inspire volatility.
“There is bound to be disappointment with Trump’s latest press conference or tweet,” explained Knutzen. “We will not know the shape of the policies and the timing of their implementation until June, July or August. In the meantime, this is going to be a messy, non-transparent process. We have seen it in the last two weeks with gyrations in oil prices, the dollar and sterling. Meanwhile, there is plenty of other stuff going on with the UK and Brexit and China.”
