U.S. industrials and other cyclical sector plays look set to be the trade of 2017 with President-elect Donald Trump expected to push through fiscal reforms and infrastructure spending, a senior Pictet asset manager said on Monday.
Percival Stanion, head of multi asset at Pictet Asset Management, said cyclical sectors had started to come back a few months ago for the first time in many years.
And with Trump's plans expected to stimulate the beaten-down industrials sector as the U.S. patches up its roads, bridges, schools and hospitals, the trend looks set to continue.
"The particular mix of Trump's policies means that cyclicals should continue to do well -- the industrial sector, the financials, materials, energy are the sectors which will start to see some significant improvement," he said, adding that he was adjusting his expectations for next year upwards.
Stanion told the Reuters Global Investment Outlook Summit that Trump had enough support in Congress to push through some fiscal reforms and infrastructure spending, although he expected him to moderate his campaigning slogans and avoid a trade war.
"All the indications are that he is far more pragmatic in his policy stance than in his tweeting," Stanion said in London, adding there were "grounds for optimism" that Trump's election would accelerate U.S. growth and inflation.
A reversal in the 30-year deflationary trend would have implications for the way asset managers build portfolios, he said, and 2016 may be the end of a 35-year bull market in bonds.
"There's a lot of pain ... likely to be experienced by portfolio managers who are the wrong side of that cyclical trade," he warned.
Stanion has been adding to industrials and small caps since the U.S. election, while in his $750 million U.K. client multi-asset portfolio he holds about 35 percent in equities, with 9 percent in U.S. stocks.
But on the fixed-income side Stanion said he was nervous about the medium (five- to ten-year) part of the U.S. yield curve as he expects the U.S. Federal Reserve to raise rates in December, with another two or three hikes possible next year.