Amidst uncertain and evolving U.S. tariff policy that has resulted in significant market volatility this year, institutional investors are making
strategic shifts in their portfolios, while seeing a diminishing role for U.S. assets in the future.
According to research from CoreData, an average of eight out of 10 institutional investors are making tactical or longer-term strategic shifts in the face of uncertain U.S. trade policy.
April’s tariff announcements from the administration of President Donald Trump caused a steep decline in global markets, but subsequent tariff pauses and deal announcements have allowed indices to largely recover. Uncertainty about what tariffs will take effect on August 1, and at what level, has led stock indexes lower this week, but they remain well above April levels.
The S&P 500 Index is up nearly 30% from April lows and up 8.59% for the year. Still, 49% of surveyed investors also said they think the markets are too complacent about tariff impacts. Approximately 56% of respondents said they hold a bearish view of U.S. equity markets over the next three months.
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European institutional investors had a more pessimistic outlook on U.S. equities, with 65% saying they were more bearish in their near-term outlook, compared with 36% of U.S. investors.
Investors overall reported reducing their exposure to U.S. assets, according to the survey, with 56% of all respondents making tactical adjustments. Approximately 63% of European investors reduced U.S. exposure, while 48% of U.S.-based investors did.
Investors also reported envisioning a long-term reduction in U.S. exposures: 69% of respondents said evolving tariff policies will accelerate a shift away from Treasurys and away from the U.S. dollar, a view held by 59% of U.S.-based respondents and 82% of those from Europe.
Approximately 64% of all respondents said Trump’s trade policies would lead to structurally higher inflation and slower economic growth, and 62% said downward pressure on the dollar would force institutions to make significant portfolio changes as a result of transformative changes to the global financial system.
One-third of respondents said they were adopting a more conservative asset allocation, which included increasing their exposure to hedge funds and other low-volatility assets and increasing exposure to inflation-hedging assets.
“The research suggests any optimism institutional investors have about the world’s most important trade negotiations belies a sense that global trade already has irrevocably changed, and thus, portfolio construction must adapt to a new reality,” said Michael Morley, head of CoreData U.S., in the report. “With a wide range of economic scenarios now very much in play, institutions are looking at ways to de-risk and build greater portfolio resilience.”
CoreData surveyed 132 institutional investors and 22 investment consultants during the second quarter of the year. Survey respondents, which include public and corporate pension funds, insurers, endowments and foundations, family offices and institutional investment consultants, collectively manage and advise on $4.9 trillion in assets.
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Tags: CoreData, institutional investors
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