According to a report by business news site CNBC, global investors have been reducing their holdings of US equities in May.
In fact global investor exposure to US equities has slumped to levels last seen during the global financial crisis (GFC)!
'Sell in May and go away'
With Wall Street continuing to set new record highs in recent days, presumably it is US-based investors who are driving US equities higher and enjoying the spoils. To date, the old saying 'Sell in May and go away, do not return until St. Ledger's Day" doesn't appear to be holding true with investors still in the market reaping the rewards with both the Dow Jones and S&P 500 marching higher.
Cash is King and picking tops and bottoms is impossible
While May might turn out to be a good month for US stocks, investing is of course a long-term pursuit. According to the CNBC report, many investors have chosen to increase their weighting of cash at the expense of US equities and in time that decision could turn out to be a prudent move…
With some market analysts believing equities are now fully priced. Although that certainly doesn't mean markets can't continue to rally, picking the top is impossible, so prudently reducing your exposure and increasing your cash levels can be a sensible way to de-risk your portfolio if you believe valuations have become stretched.
If the US sneezes the rest of the world catches a cold
While the S&P/ASX 200 (Index: ^AXJO) (ASX:XJO) is still below its level of five years ago, that doesn't mean it's a safer place to be invested compared with US equities or that valuations may not have become stretched here too.
Even if you only invest in ASX-listed stocks, if you believe the market is looking top heavy you may want to consider adjusting your portfolio weightings towards more conservative and defensive stocks. One way to do this is to own shares in companies run by capable managers, with plenty of cash on their balance sheet to provide the firepower to snap-up bargains during times of distress. Companies such as Premier Investments Limited (ASX: PMV) and Flight Centre Travel Group Ltd (ASX: FLT) could fit that strategy.
