Be defensive against U.S. equities in 2016

U.S. equities will continue to be expensive throughout 2016, largely due to the Federal Reserve’s shifting of fiscal policy.

Listen to the full podcast on AdvisorToGo.

So says Luc de la Durantaye, first vice-president of Global Asset Allocation and Currency Management at CIBC Asset Management. He manages the Renaissance Optimal Inflation Opportunities Portfolio.

The pressures that U.S. equities are facing have intensified, he adds. “The Fed has started its renormalization of monetary policy, so that’s an uphill battle relative to other countries and stock markets.”

Read: Fed hike is a brave experiment

Further, “The U.S. dollar is in its third-biggest bull market in three decades. So that also presents an uphill battle for U.S. companies.”

Read: How to keep ahead of our plunging dollar

Over the last year, de la Durantaye says the main reason Canadian investors have benefited from holding U.S. equities is because “the U.S. dollar has been strong relative to a Canadian dollar. [But], when we look at the local return of U.S. equities over 2015, it’s been disappointing. Other markets outside of the U.S. have done better.”

Read: Advisors less bullish on equities

As a result, he plans to maintain his current neutral stance on U.S. equities throughout 2016. Then, if anything, he expects “continued pressure or increased pressure in the same direction would make us become even more defensive.” That could include becoming underweight the U.S. equity market.

Read:

Further dip in oil could benefit investors

This year, choose equities over fixed income: report

Short bets against Canadian banks increasing

Red flags for equity investors