It’s time to cut back on risky assets in the United States, says BCA Research, and the firm counsels a shift away from stocks and bonds in favour of U.S. Treasurys.

In a research note, the firm indicates that it has been overweight risk assets relative to Treasurys and cash since early 2009, but it now believes that it is “time to take profits and scale back on risk exposure.”

“We recommend cutting equity and corporate bond allocation to neutral and placing the proceeds in Treasurys,” it says.

The firm indicates that this is a tactical shift, and that it has not abandoned its view that the economic recovery will ultimately be sustained, “although growth will be tepid by the standards of past recoveries that followed deep recessions.”

“No doubt, if a new recession takes hold then there will be a further significant drop in equity prices. But, even without a recession, there will be enough uncertainty about the outlook to keep investors on edge and it is not clear how long that situation may persist,” it says.

BCA adds that the continuing decline in U.S. and global leading indicators, “suggest that growth will continue to disappoint, in the near term at least.”

“On this basis, the prudent strategy is to have no more than a benchmark weighting in equities and corporate bonds until a clearer picture emerges and our leading indicators bottom,” it says.

One caveat, the firm adds, is that “investors who are interested in absolute rather than relative returns should hang onto high-quality corporate bonds. These securities have the potential to rally further if Treasury yields head lower.”

IE