Pioneer Investments is recommending that investors prune their holdings of U.S. equities, saying that the improving economy has reduced the scope for Federal Reserve stimulus to propel further gains in stocks.
“Markets have anticipated the improvement in the economy, so going forward it will be more important to look at the improvement in the economy and less at the moves of central banks,” Pioneer’s Group Chief Investment Officer Giordano Lombardo, who oversees about $228 billion of investments globally, said in Paris last week. “The point is: the marginal effectiveness of unconventional monetary policy is shrinking.”
Lombardo said his company continues to hold more equities than are represented in asset-allocation models because monetary stimulus remains so great. He recommends having an underweight position in U.S. equities and an overweight position in European, Japanese and Chinese shares.
The minutes of the last Fed meeting released on Nov. 20 showed that officials will consider reducing the central bank’s $85 billion in monthly bond purchases if the economy improves in line with their forecasts. The extraordinary monetary stimulus has helped the Standard & Poor’s 500 Index more than double, bringing a measure of U.S. equity volatility to its lowest level since February 2007 earlier this year. The Euro Stoxx 50 Index has rallied 65 percent and China’s CSI 300 Index has jumped 11 percent in the same period.
“We need to recognize we are entering a more dangerous stage of the the equity market,” Lombardo said. “That is why we are more and more cautious about the U.S.”