Forvis Mazars has increased its exposure to US equities in the latest rebalance of its model portfolios.

The firm believed that the US markets had “overreacted” and placed excessive weight on the most negative trade war scenarios, while undervaluing the potential for a short-term resolution and incremental strategic competition.

It argued that this created an opportunity, and therefore increased its asset allocation to US equities from being significantly underweight to neutral.

While Forvis Mazars acknowledged severe economic outcomes were possible, its base case assumed that compromises would be made that would avoid effective trade embargoes between the US and China.

Furthermore, it argued that if there was a global recession led by the US, the nation’s ‘relatively closed’ economy would likely handle the slowdown better than others.

The increase in US equity exposure in Forvis Mazars model portfolios was implemented through passive index-tracking funds, utilising the SPDR S&P 500 ETF for core portfolios and the Franklin S&P 500 Paris Aligned Climate ETF for sustainable portfolios.

Meanwhile, Forvis Mazars reduced its overweight position in energy equities to a neutral one, noting that tariff-induced inflation was unlikely to drive up oil prices further and that geopolitical conflicts in oil-producing regions “appear contained”.

This reduction in energy equities was implemented through sales in an index-tracking energy ETF in core portfolios and its sustainable energy fund in its sustainable models.

Finally, Forvis Mazars has moved from a neutral to underweight position on UK equities, reallocating profits from UK equities to the US and making the adjustment through sales of its index-tracking UK equity fund.

It stated that while UK equities had performed strongly during the economic volatility, headwinds such as stalling economic growth and an additional payroll tax challenged the UK outlook.

Overall, the firm made no net change to its equity weight during its quarterly rebalance.

"US tariffs roiled markets in the first quarter of the year, as we have written and talked about extensively,” commented Forvis Mazars chief investment officer, Ben Seager-Scott.

“Excessive optimism has sharply reversed and we believe markets may be focusing too much on the most negative scenarios albeit the outlook is for a tougher economic environment compared to a year ago.

“We therefore took the opportunity at the recent portfolio rebalance to increase our US equity exposure whilst trimming the more challenged areas of UK equities and energy equities, thereby keeping our overall equity weight neutral."

---