IFAs are advising clients to stick with US equity allocations despite the volatility witnessed so far this year.
According to a Franklin Templeton survey of 200 IFAs, conducted by Opinium, two thirds of respondents are advising clients to either maintain or increase US equity allocations.
However, ‘Liberation Day’ has impacted how IFAs have approached client asset allocation. Some 60% of those surveyed said they had made changes to their strategies in response to the impact of tariffs.
One in six have increased their global asset allocation to actively managed strategies, while a further 15% have added to alternative assets as a hedge against volatility.
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Meanwhile, 10% have either moved assets into defensive or lower-risk holdings or have rebalanced portfolios to reduce exposure to tariff-affected sectors.
However, wider fund flow data has shown that investors have started to reconsider US equity allocations. North American equity funds suffered their first net outflows for six months in May, according to the latest Investment Association (IA) fund flow stats, which showed a net £622m outflow from the sector.
Franklin Templeton said IFAs are looking beyond the short-term volatility, however.
“While tariffs may have shifted trade dynamics, the strength of the US economy and its global influence remain intact,” Michael Browne, global investment strategist at Franklin Templeton Institute said.
“The volatility from the new tariffs has created some short-term noise, but markets knew this was coming and have largely priced this in.
“The majority of advisers we surveyed are looking beyond the volatility, encouraging their clients to hold or increase their position in US stocks. History shows us that the US often absorbs trade shocks and recovers quickly, thanks to its fundamental structural growth, continuous innovation, and strong corporate earnings.”
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Diversification
Given the recent run of the “magnificent seven” US tech names, a third of IFAs are seeking diversification through increased allocation to other sectors within the US.
Half of those surveyed agree that the US equity rally will broaden beyond mega-cap tech. Some 42% suggested small and mid-cap sectors could outperform mega-caps in the second half of 2025.
However, 39% believe the ‘market broadening’ narrative is overhyped, and that mega-caps will continue to lead. Over a quarter (27%) are maintaining their current exposure, with a further 15% saying that they are making no changes to their strategy.
IFAs are also waiting for a clearer picture on the Federal Reserve’s future approach to interest rates, with over two fifths saying that a cut to the Fed Funds rate could lead them to increase investments in small-cap and cyclical stocks. Just under half have rebalanced their client’s portfolio due to the valuation gap between US mega-caps and the rest of the market.
This story was written by our sister-title, Portfolio Adviser
