Liontrust’s multi-asset team is neutral on US equities despite the rich valuations of mega caps, according to its mid-year tactical asset allocation update.
While acknowledging that valuations mean an overweight is not appropriate, Liontrust has not shifted all the way to an underweight owing to a positive outlook in other parts of the market.
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“US stocks delivered gains in both dollar and sterling terms over the second quarter,” the asset manager’s multi-asset team said in the report. “There were some strong earnings results but most of the gains were from the technology mega caps. We do believe this degree of outperformance without a correction at some point would be highly unusual.”
“Overweighting the overall US large caps market would not feel right at present given its arguably expensive stocks, but there is still plenty of value elsewhere in the market. US smaller companies have underperformed amid the monetary tightening seen in the last two years and they now offer good value.”
Away from the US, Liontrust continues to position funds to be overweight in equities generally, especially small caps, UK, Japan, Asia ex Japan and emerging markets.
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“In the second quarter, UK equities extended the gains they made in the first despite drifting down slightly in June ahead of the general election in July. Latest data showed UK GDP had grown 0.7% in the first quarter, ending the shallow recession seen in the second half of 2023,” Liontrust said. “UK equities remain undervalued, in our view, and overlooks the potential for them to outperform.”
The firm noted emerging markets stocks extended the gains they made in the first quarter, with a rebound in China was a key factor. Emerging market stocks generally are relatively cheap compared with developed markets, in Liontrust’s view.
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The overweight to Japan stems in part from the macro picture. “The country is in an inflationary environment for the first time in a couple of decades, which should encourage more consumption,” Liontrust said.
“The corporate picture is also improving, and we believe Japan’s stockmarket has a lot of ground to make up from its lost decades of poor performance.”
