QMA’s chief investment strategist has significantly pulled back the firm’s risk exposure during the past few weeks due to the escalating U.S.-China trade war.
Ed Keon, who runs more than $50 billion in multi-asset portfolios for QMA, says stocks are in a danger zone because it’s becoming increasingly unclear whether a resolution on tariffs is coming.
“We’re not bears. We just think this is a period of unusual uncertainty,” he told CNBC’s “Futures Now ” on Tuesday. “It’s a question of balancing risk and expected return.”
He said a deal now would add just 3% to 4% to the market. That’s the level stocks were trading around a few weeks ago when the White House had suggested an agreement was imminent.
“The risk is significantly higher if you go to a full-blown trade war with tit-for-tat retaliation,” said Keon. He said that scenario could push the market back into correction territory.
So without a good way of handicapping which way trade negotiations will go, Keon opted to bring his asset allocation exposure just below the standard weighting of 60% stocks and 40% bonds to 59% stocks and 41% bonds.
“I try to hedge my risk in the bond portion of the portfolio by adding a lot of longer duration Treasurys in there — so, kind of a barbell approach,” he said.
However, one big mitigating factor is baked into Keon’s forecast that could turn him from cautious to securely bullish even without a trade deal: U.S. productivity continuing to grow above 2%.
“The best news to me would be productivity really does pick up in a sustained way,” Keon said. “Then you’re going to be much more aggressive in your equity allocation.”