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

Core Insights - Investors are reducing their exposure to US assets due to concerns over tariffs, pressure on the Federal Reserve, rising deficits, and a potentially weaker dollar [2][3][6] - The start of Trump's second term has prompted a genuine diversification in client portfolios, with a shift towards European and Japanese markets, as well as private markets linked to the AI boom [3][6] Investment Trends - A growing number of clients from Mercer LLC, managing a total of $17 trillion, are reallocating funds from the US to Europe, Japan, and other regions [2] - US equities have underperformed compared to global peers for dollar-based investors, particularly following uncertainties related to Trump's trade policies [3] Tariff Implications - Tariffs present a dual challenge for markets, potentially squeezing profit margins or leading to inflation if costs are passed on to consumers [4] - The Trump administration's support for a weaker dollar could exacerbate inflationary pressures caused by tariffs, complicating the Fed's ability to cut rates [5] Federal Reserve Dynamics - Trump's criticisms of Fed Chair Jerome Powell and attempts to influence Fed governance have contributed to a shift away from US assets, raising concerns about the politicization of the Fed [6] - The focus on inflation and employment by the Fed is becoming increasingly complicated, leading to a stronger advocacy for diversification among investors [6]