By CCN.com: The Dow Jones closed in on record highs on Thursday, but for one billion dollar fund, this is the perfect time to lock in profits.
Pictet Wealth Management, which manages $222 billion, is cashing out of stocks at the top of the market and piling up cash reserves. The fund is now building a defensive portfolio in the face of global trade war fears.
Is it a sign that the Dow Jones rally is running out of steam?
Dow Jones Industrial Average futures surged on Thursday after the Federal Reserve hinted at rate cuts on the horizon. Investors cheered the dovish tone, pushing the Dow 226 points higher (0.85 percent) in pre-market trading. At 5.58 am ET, Dow futures hit 26,755, just shy of its record close of 26,828, set on October 18th.
Investors have locked in a decade of solid gains since the 2008 crisis. But as US stock market indexes tease record highs, Wall Street traders are taking profits and hedging for downside risk.
Pictet has shifted to a defensive portfolio strategy, almost doubling its cash holdings to 15 percent this year. A fund of this size typically only holds 5 percent in cash, so Pictet is obviously hedging against a pullback in equities. As you can see in the tweet below, they’re also communicating a defensive strategy to their clients.
The strategy chimes with a recent Bank of America Merrill Lynch survey. The report, which polled money managers with combined $528 billion AUM, revealed that Wall Street was unwinding stocks at the second-fastest rate in history. Meanwhile, cash holdings are surging.
Like many firms, Pictet points the finger at the Sino-American trade war for its defensive play. Chief investment officer for Asia David Pictet said the ongoing dispute risks delaying economic growth.
Gaud is also concerned that Europe is next on Trump’s tariff list. The US has a large trade deficit with the eurozone, making it the “next candidate” for tariffs. Just this week, Trump accused the European Central Bank of manipulating the euro in favor of EU trade .
Pictet believes a trade war with Europe would be “very destructive” with the European economy already at risk from Brexit and Italy’s debt crisis.
Despite the defensive strategies on Wall Street, not everyone is pessimistic about the Dow’s future. As CCN.com reported yesterday, Skybridge Capital thinks the risk of recession is “greatly exaggerated”. They see the flagship US index soaring to new record highs of 30,000.
“Even though some of the headlines in the short term are negative, you can’t get too bearish based on the recent trajectory of China-US trade talks. You have to still focus on the strength of the domestic U.S. economy, which is rather robust.”