After a long-standing overweight of U.S. equities, Luc de la Durantaye has shifted to neutral—despite the fact that most analysts expect the U.S. to outperform this year.
De la Durantaye, first vice-president of global asset allocation and currency management at CIBC Asset Management, says he has three reasons for decreasing his holdings to market weight. He manages the Renaissance Optimal Inflation Opportunities Portfolio.
1. Valuations are too high
“U.S. equities have appreciated, and have been some of the best-performing, over the past few years,” he says. That makes them too expensive, especially since he’s a value investor.
2. Fed policies will adversely affect companies
He expects U.S. interest rates to be higher than those in other countries. “American companies will have to deal with a less accommodative central bank than in Europe or Asia.”
3. The U.S. dollar is strengthening
A strong greenback makes U.S. exporters less competitive, says de la Durantaye. What’s more, “the Canadian dollar was at parity when we started buying U.S. equities,” and it’s now hovering near 84 cents. “From a valuation perspective, we’ve benefited from the depreciation of the Canadian dollar, but we don’t expect the Canadian dollar to depreciate much further from here.”