Money managers grow cautious ahead of US election

Some of the world’s largest asset managers have moved to the sidelines heading into the final days of the US election, as the tightening race prompts volatile swings in stock, bond and currency markets.

Markets have swung rapidly as the race between Democrat Hillary Clinton and Republican Donald Trump has narrowed in several swing states. The benchmark S&P 500 has slipped as Mrs Clinton’s lead has deteriorated, suffering its longest losing streak since the 1980s on Friday.

The index has fallen 3.1 per cent since October 24, when Mrs Clinton’s odds of taking the White House were roughly 86 per cent, according to FiveThirtyEight, the influential site that calculates odds on the victor of the US election. Those odds fell to 65 per cent on Friday, although the pace of decline has slowed.

The tightening polls have proven a boost to gold, which enjoyed its best week since June, and have whipsawed the Mexican peso. The second-most traded emerging market currency has become a proxy for bets on the US election and has weakened alongside Mr Trump’s advance.

“The move so far has been a flight to quality,” said Raman Srivastava, deputy chief investment officer at Standish Mellon Asset Management. “There is more worry about a less functional government.”

Investors curtailed their long and short positions in S&P 500 futures in the week to last Tuesday, and volatility has also climbed, with investors characterising the trading environment as shaky.

Robert Cohen, the director of global developed credit at DoubleLine Capital, said fixed income markets felt “heavier”.

“We are going away from a period of ferocious demand where you couldn’t elbow your way into this market,” he said. “That’s not the case now.”

Investors have piled into cash — money market funds counted their largest weekly inflows in three years — and safe-haven Treasuries, while cutting their exposure to stocks and low-rated corporate bonds as they ready for a volatile few days.

Giorgio Carlino, US multi-asset chief investment officer at Allianz, said the German asset manager had cut its long bets on the US dollar and emerging market stocks around the time.

“We’ve reduced the active positioning we had . . . to reduce the risk of being caught offside,” he said. “The market was discounting an easy Clinton win and again its not 70:30. It’s perhaps 52:48.”