Darkening economic conditions have prompted the investment firm to pull in its horns.
Fidelity International, which oversees £221.3 billion ($288.9 billion) of assets has cut its exposure to equities, arguing that the global economic environment has soured. The firm is now neutral of stocks.
The firm said its overweight stance, which it had in place from the start of 2019, was a contrarian one, but it was now time to change.
“Looking back on the first quarter of 2019, the defining story was clearly the strong performance of risk assets. After its worst quarter since 2008, the S&P 500 responded with its best quarter since the onset of the recovery in 2009. But global economic fundamentals have continued to deteriorate despite markets rallying, and this has led us to return to a neutral view on equities overall, after moving overweight in January,” James Bateman, chief investment officer, Multi Asset at Fidelity International, said.
“In addition to this reduction in risk, our team is maintaining exposure to duration assets (US Treasuries, Gilts, Australian government bonds), which we prefer relative to cash for defensiveness,” he continued.
“Equity markets are back near their all-time highs reached in 2018. We believe the current rally is not sustainable without some more positive signs in fundamentals and these signs do not appear forthcoming,” Bateman said.
“But the anaemic growth outlook hasn’t seen investors rush out of risk assets, and their focus has instead been on positive signs of a resolution to the US/China trade dispute, and policy responses from the world’s major central banks. The Fed has moved more solidly dovish, and the ECB is trying its best, but this may be more ‘dovish-damage-control’ than stimulus. Meanwhile, China is responding to its weakest annual growth figures since 1990 with coordinated policy support, albeit at muted levels relative to the ‘big-bang’ stimulus of recent years,” he continued.
“We suspect that markets may be getting ahead of themselves by pricing in dovish expectations, where investors have grown accustomed to policy makers stepping in to save the day. But policy makers are stepping in precisely because of economic weakness, and for us to put more risk on the table, we are going to need to see the data improve. Calls for ‘green shoots’ seem premature,” he said.