It’s time to get defensive

The vulnerability of the US share market to correction should encourage investors to increase allocations to defensive assets, according to RARE.

Investors should increase allocations to defensive assets, particularly at a time when the US sharemarket is showing its vulnerability to a correction, according to listed infrastructure investment manager, RARE.

RARE’s co-chief executive and co-chief investment officer, Nick Langley, said that there were a number of justifications for this approach.

First of all, quantitative easing (QE) turned to quantitative tightening (QT) which caused more market volatility and as a result of which the FANGs (Facebook, Apple, Amazon, Netflix, and Google) did fail to reassert their leadership.

Secondly, the world continued to witness the China/US trade war, he said.

“The ‘get tough on China message is one of the few issues President Trump has been consistent on.

“Further, there is bi-partisan support in the US for containment of China.

“In short, we don’t see the trade war ending any time soon, and importantly, we see it potentially impacting on global economic growth and ultimately S&P 500 earnings,” Langley said.

Additionally, monetary conditions would further tighten, with the yield curve heading for inversion while the ‘sugar rush’ from Trump’s tax cuts would be expected to wear off in 2019, according to RARE.

“Accordingly, while it may be premature to reduce equity exposure too drastically at this point, we believe taking a defensive equity exposure is prudent for investors in this market.

“Infrastructure stocks are one key way investors can achieve this,” Langley added.

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