A leadership vacuum in the world's biggest economy has driven the largest private-sector pension fund in Finland to cut the weight of U.S. stocks in its €45 billion ($53 billion) portfolio.
"It seems as if there is no president in the U.S.," Risto Murto, chief executive officer of Varma Mutual Pension Insurance Co., said in an interview in Helsinki. "If I look at what is the moral and practical power, there is no longer a traditional president."
The unorthodox start to Donald Trump's presidency — dominated by Twitter outbursts that have included nuclear saber rattling with North Korea and a defense of white nationalist protesters — has turned the U.S. into a source of global political risk. The legislative program that many investors had hoped would support economic growth looks to have stalled, and Mr. Murto says Mr. Trump's apparent inability to work with Congress is particularly worrying, given the global ramifications of decisions made in Washington.
"The lesson from 2008 is that if we have a problem in the U.S., then we all have a problem," Mr. Murto said. He described Mr. Trump's response to demonstrations in Charlottesville as a "breaking point if you look at how business leaders reacted," retreating from association with the president.
Varma reduced its equity weight by 5% in the second quarter, mostly by cutting U.S. stocks. It's now holding more cash and is ready to jump on opportunities as they arise. The fund has also shortened the duration of its fixed-income investments using derivatives positions to prepare for higher interest rates.
Some of the reduction in U.S. stocks has to do with realizing profits after "a very good run in equities since February 2016," said Reima Rytsola, chief investment officer. "It's natural that it will halt a little bit." The "U.S. economy is still doing ok," he said. But the bottom line is that "we are worried."
Stocks rallied in the months after Mr. Trump's election win, on anticipation his administration would push through a business-friendly agenda. But the president's lack of leverage with Congress now leaves his policy agenda — from taxation to infrastructure and domestic policies — "totally open," Mr. Murto said.
One bright spot for trade-reliant nations like Finland is that a stalled Trump agenda means he may fail to push through his protectionist goals, Mr. Murto said. Most of Varma's stock portfolio is in Finnish companies that rely heavily on Asian business.
"In terms of direct exposure, the bigger news to us is that China is accelerating," Mr. Murto said.
