One in three wealth managers in the US reduced their exposure in the first three months of the year as investment professionals reassess their positions in response to geopolitical and macroeconomic developments, a recent investment manager sentiment survey has revealed.
The ARC Market Sentiment Survey Q1 results indicated a prevailing sense of caution, with conviction levels falling across all asset classes, most notably in US investments with the largest negative sentiment swing towards US exposure in 15 years.
This caution was shaped by economic uncertainty and geopolitical instability in the early months of US President Donald Trump’s return to the White House. Sentiment towards US assets turned 4 per cent net negative this quarter, starkly contrasting the 36 per cent net positive outlook recorded a year ago, the investment consultancy highlighted.
Trump-induced volatility
The Trump administration announced sweeping tariffs on imports on Wednesday, dubbed ‘Liberation Day’ by the president. The plan sparked significant volatility across global markets. A 10 per cent blanket tariff on all imports will take effect on 5 April, while higher ‘reciprocal’ tariffs targeting specific trading partners will begin on 9 April.
Dr James Cooke, deputy CIO at ARC, said: ‘This is the biggest negative sentiment quarter-on-quarter US swing we have seen since our Market Sentiment survey began in 2010. President Trump’s “Liberation Day” tariffs threaten to damage sentiment further. Higher asset price volatility ought to provide opportunities for active managers to demonstrate the value they can provide. Those managers not making changes indicate they intend to look through the Trump-induced volatility believing tariff imposition may be temporary.’
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Sentiment towards equities remained positive
Despite the continued uncertainty, overall sentiment towards equities remained positive at 29 per cent, though this figure has declined from 40 per cent in Q1 of the previous year. Bonds have suffered the most pronounced drop, with net positive sentiment falling from 44 per cent to 29 per cent year on year.
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While some investment firms opted to maintain their existing strategies, those making adjustments primarily reduced their exposure to US equities, particularly large-cap and technology stocks. Some investors increased their holdings in US small and mid-cap stocks, while others utilised call options on the S&P 500, indicating a more selective rather than broadly bullish investment approach, ARC said.
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Firms scaling back their exposure actively hedged against USD fluctuations and reduced equity allocations, adopting a more defensive stance amid market volatility.
The ARC Market Sentiment Survey is a quarterly poll that gathers insights from 78 investment management Chief Investment Officers (CIOs) evaluated the 12-month outlook for major asset classes and sectors.
