Funny how fast things change. At the start of the year, Wall Street was applauding Donald Trump’s plan to reshape global trade. Now it’s rushing to find refuge from Mad King Donald.
To see how violently sentiment has flipped, turn to the latest edition of Bank of America’s widely followed Global Fund Manager Survey. The March results show that fund managers have spent the past four weeks chopping their allocation to U.S. stocks by the largest amount in the survey’s 24-year history. Pessimism abounds, with 63 per cent of money managers expecting the global economy to weaken over the year ahead.
What should investors make of this sudden bleakness? BofA, bless its patriotic heart, insists that the plunge in sentiment is actually bullish. The bank’s reasoning is that many fund managers have already sold stocks and raised cash. These pessimistic managers will eventually have to reinvest all that cash, which should ultimately lift markets – or so the folks at BofA argue.
Maybe they’re right. Skeptics, though, might wonder just how long it will take for the “eventually” and the “ultimately” in that chain of reasoning to materialize. It could be quite a while, given the massive uncertainty around where Mr. Trump is steering the world.
At least for the moment, everyone seems to be searching for the same thing – a haven from Washington’s lunacy.
The traditional hiding places are already packed. Gold, the most obvious place for nervous money to bolt, has soared over the past couple of years. Now, at record prices of more than US$3,000 an ounce, bullion looks stretched by historical standards.
Bonds, the other time-honoured shelter for the risk-averse, face their own issues. The biggest is Mr. Trump’s obsession with tariffs. The more he succeeds in disrupting global trade, the more prices for many goods are likely to rise. That could spur inflation, which is kryptonite for bond prices.
To avoid such problems, brave investors might be tempted to venture into more adventurous areas and look for assets that could actually benefit from Mr. Trump.
The problem with this strategy is that the early candidates haven’t delivered. Bitcoin, which was supposed to blossom under the crypto-friendly Trump administration, has done nothing but fall since inauguration day.
Tesla Inc. has performed even worse. Despite the red-hot bromance between Mr. Trump and Elon Musk, shares in Mr. Musk’s company have lost more than 40 per cent of their value since the Tariff Terror took office.
So where can investors turn for a calmer, more rewarding experience in this market turmoil? To my eye, three potential havens stand out.
The first is Berkshire Hathaway Inc. (BRK.B-N) Yes, Warren Buffett, Berkshire’s boss, is 94 years old, which means his time is running short. But he – or, more accurately, the team he has assembled – is still capable of hitting home runs. The proof is in the share price: Berkshire stock has tripled over the past five years.
Just as impressive is Berkshire’s fortress-like balance sheet. Mr. Buffett has been steadily selling stocks for two years now and has now amassed a staggering US$334-billion in cash. If buying opportunities emerge from the current chaos, he is superbly positioned to take advantage of them.
So long as Mr. Buffett remains healthy, his sprawling empire offers a low-risk way of riding out the current market storm. Berkshire shares have gained more than 12 per cent since inauguration day. They should continue doing well given the company’s wide diversification, enormous cash hoard and sensible management.
A second haven worth considering is European stocks. They are an ocean away from Mr. Trump’s policy tantrums. They are also considerably cheaper than U.S. stocks on just about any metric you care to consider – price-to-sales, price-to-earnings, price-to-book.
To be sure, they’re cheaper for good reasons. Europe has an aging population, few big technology companies and complicated politics. But given the relatively low expectations for the continent’s stocks, they don’t have to do much to deliver a pleasant surprise.
European stock markets have had a nice little run to start the year and could rise another 6 per cent over the rest of the year, according to Goldman Sachs. One very positive sign is the recent decision by Germany, the continent’s biggest economy, to loosen its financial corset. Its new willingness to spend could help spur an industrial revival as Europe rearms itself to face the threat of Russian aggression.
If investing in Europe appeals to you, check out the low-cost exchange-traded funds offered by Vanguard Canada and RBC iShares. Both offer products that target either Europe specifically or non-North American markets more broadly.
One final haven to ponder is Canadian electrical utilities. Several of them – Canadian Utilities Ltd. (CU-T), Fortis Inc. (FTS-T) and Hydro One Ltd. (H-T) – offer a tempting combination of reliable dividends with reasonable value and decent growth prospects. They are especially attractive right now because they are somewhat insulated from any slowdown in consumer spending that may occur because of tariff wars.
Will investing in any of these havens produce spectacular returns? In all honesty, probably not. But they can produce decent results while helping you navigate Trump-induced turbulence.
