Funds Are Shifting Away From US Assets Due to Trump, Mercer Says

(Bloomberg) — Donald Trump’s efforts to rewire global trade and pressure the Federal Reserve into cutting interest rates are prompting investors to trim their US exposure, according to Mercer LLC.

A growing number of the investment consulting firm’s 3,900 clients overseeing a combined $17 trillion are switching money from the US to Europe, Japan and elsewhere, said Hooman Kaveh, global chief investment officer in New York. The outflows are due to concerns over tariffs, Trump’s pressure on the Fed, the rising deficit and the prospect of a weaker dollar, he said.

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The start of Trump’s second term “has been a trigger for genuine diversification,” Kaveh said in an interview this week. “We’re certainly seeing that in client portfolios where flows are toward diversifying markets, geographies, asset classes, currencies.”

Uncertainties over Trump’s trade wars spooked global markets in early April with US stocks and Treasuries both sliding in the immediate aftermath of his “Liberation Day” announcement. While both later recovered, US equities have lagged behind most of their global peers this year for dollar-based investors.

Tariff Challenge

Tariffs are a difficult challenge for markets to gauge as they can either weaken company profit margins, or be passed on and stoke inflation, Kaveh said.

“If you have a situation where tariffs are going to push prices up, and the weaker dollar potentially can increase inflation, that would cause the Fed much more of a challenge to cut rates,” he said.

The Trump administration’s broad support for a lower greenback is “the Achilles heel to the current approach” because it would amplify the inflation caused by tariffs, he added.

Trump’s frequent criticisms of Chair Jerome Powell for being slow to cut rates and the president’s efforts to fire Governor Lisa Cook have added to the move away from US assets, Kaveh said.

“The politicization of the Fed is putting the Fed in the corner,” he said. “The single-minded focus on inflation and employment now is being blurred. It’s not good news. It does advocate for diversification.”

Mercer’s clients are looking to boost allocations in European and Japanese equities, where valuations remain attractive relative to the US, and also in private markets, including venture capital linked to the artificial-intelligence boom, Kaveh said.