The head of asset allocation at AMP Capital Investors, Nader Naeimi, is reducing equity holdings for the first time since 2011 as he sees the paring of US Federal Reserve stimulus driving a 10 per cent slump in US stocks by year-end.
Shares had risen too far, too fast as the Fed prepared to cut the $US85-billion-a-month asset purchase program that helped the S&P 500 index reach a record high this month, said Mr Naeimi.
Uncertainty ahead of German elections next month and about who will replace Fed chairman Ben Bernanke would also drag on global equities, he said. "Cash is the safest place right now. We're expecting a pull-back much bigger than pull-backs we have experienced so far since 2012."
The US central bank's plan to reduce record stimulus is whipsawing stocks, bonds and commodities.
The S&P 500, which is up 17 per cent this year, was likely to sink at least 10 per cent by December 31, said Mr Naeimi, who correctly predicted an 18 per cent fall in Japan's Topix index that began in May.
AMP's Dynamic Asset Allocation Fund, which manages money for institutional clients, had reduced shares in favour of cash. The allocation changes affect more than $50 billion of AMP's diversified funds.
The funds now hold fewer Australian and emerging-market equities than the benchmarks they track, while owning more Japanese and European shares, Mr Naeimi said.