Global money managers are starting to act on the so-called Trump gap, as the space between what President Donald Trump promised on the campaign trail and what he can deliver begins to widen.
Concern is mounting over Mr. Trump's ability to follow through on regulatory and tax reforms and increased infrastructure spending after the president and a Republican-controlled Congress failed to repeal and replace the Affordable Care Act.
That early miss put a damper on the good feeling that followed Mr. Trump's election and is pushing some executives to pull back from U.S. exposure.
In recent days, Mr. Trump has underscored in interviews the importance of reforming health care before tackling taxes.
“The failure of deal-maker Trump to even reach a deal with his own party is a clear wake-up call that campaigning successfully is something different than governing successfully,” said Lukas Daalder, Rotterdam, Netherlands-based chief investment officer for Robeco Investment Solutions. “The more (he) is forced to stick to deficit-neutral changes, the more limited the overall reflation impact will be for the economy as a whole.”
Robeco has moved to overweight European equities at the expense of U.S. equities, Mr. Daalder said, given the relative high valuations of U.S. stock markets and added execution risks with respect to the Trump agenda.
The failure to repeal the Affordable Care Act also pushed Nikko Asset Management to shift its U.S. exposure to neutral, said Steve Williams, London-based portfolio manager on the global fixed-income team. “The subsequent failure by (the) administration to swiftly repeal Obamacare saw the markets question the viability of the future policy direction by the new administration, particularly the ability to pass ... tax reform,” he said.
“The apparent political deadlock diminished the prospects for a broader reflationary impulse from the Trump administration,” with U.S. Treasuries rallying in the latter part of the month, he said. U.S. 10-year Treasury bonds topped 2.6% in the middle of March, and slid to about 2.4% at the end of that month.
Aviva Investors' multiasset team positioned strategies for higher interest rates, growth and inflation even before Mr. Trump's election “supercharged” the story, said Nick Samouilhan, London-based senior fund manager, multiasset. “But we are well aware that markets have got too far ahead and may fall back,” he said. The firm moved in January to add positions that would hold out in a reflationary scenario and also in a less-positive situation.