After a momentous run up in U.S. equities following the November election, DoubleLine Capital CEO Jeffrey Gundlach said it’s time to ditch U.S. stocks for emerging market equities.
Pointing to U.S. stocks, which Gundlach said make up 50 percent of global valuations compared to the U.S. GDP’s 24% of global total, he said valuations on the broad S&P 500 are stretched. Because of that, he suggested shorting (a bet that stocks will fall) the SPY, the index’s exchange traded fund, and diving into EEM, an emerging markets ETF.
Gundlach is not alone in his call: An April fund manager survey from Bank of America Merrill Lynch showed investors are fleeing U.S. stocks at a pace not seen in decades. Flows into eurozone stocks from U.S. equities saw the fifth-biggest rotation since 1999. What’s more, 44% of investors included in the survey were overweight emerging markets, the highest allocation in five years, while a record number -- 83%-- of investors saw U.S. stocks as overvalued.
A number of factors have weighed on investors’ minds including the double-digit percentage gains for U.S. equities after the election, and the odds of quick fiscal policy rollout -- including tax reform -- from the Trump administration.