Fund managers cut equities to 7-month low: poll

Date: Thursday, October 1, 2009
Author: Natsuko Waki, Reuters

Leading global investors cut equity holdings to their lowest level since February and boosted bonds and cash in September, a Reuters poll showed, as they grew nervous about adding more risky assets after a broad rally.

Forty-nine U.S. British, continental European and Japanese fund management companies held an average of 54.9 percent of their portfolio holdings in equities -- the lowest level since February -- compared from 57.1 percent in August, according to the monthly asset allocation poll.

Bond holdings -- which include government bonds as well as corporate bonds -- rose to 35.8 percent from 34.5 percent while cash rose to 3.6 percent from 3.3 percent.

The remainder was allocated to hedge fund, property and other alternative investments.

The average equity holding was pushed down primarily by British investors, who cut their stock exposure on worries that the market rally might be running out of stream.

World stocks, measured by the benchmark MSCI index, have risen 27 percent since January, recouping more than half of last year's losses.

"We've had a huge, huge rally," said Doug Gordon, investment strategist for Russell Investments in Tacoma, Washington.

"The performance has been made in equities so it makes sense to be selling off our winners."

Equity holdings remain below their long-term average of 59.3 percent, despite this year's rally.

However, investors remained confident in a long-term recovery.

"The economic improvement observed in most developed countries in the second quarter will continue in the third quarter. We also expect the policy mix -- the combination of monetary and fiscal measures -- to remain accommodative for a long time to come, thereby supporting activity," said Patrick De Fraguier, head of strategy at Credit Agricole Asset Management.

"We expect a sustained but uneven recovery. Moderate and short term consolidations are justified."

REGIONALLY

U.S. fund managers decreased their heavy exposure to stocks and raised their bond allocations.

Based on 11 U.S.-based fund management firms, firms reduced equity holdings for a second consecutive month, to an average of 63.8 percent of their assets, compared with 64.1 percent in August.

The group held an average of 30.3 percent of their assets in bonds, up from 29.2 percent in August. Exposure to cash decreased to 1.6 percent this month from 2.0 percent in August.

Continental European fund managers remained bullish, boosting equity allocation and cutting bonds, although they also added cash holdings.

The survey of 16 investment houses in the region showed equity holdings rose to 46.5 percent of their portfolios -- their highest in three months -- from 44.6 percent in August.

Bond holdings fell to 41.4 percent in September from 42.2 percent last month. Cash rose to 5.1 percent this month after falling for six straight months to August.

Six out of 16 managers are fully invested, meaning they had no cash in their portfolios.

Japanese fund managers trimmed both stock and bond weighting and boosted their cash holdings instead.

The poll of 12 fund managers showed their average stock allocation fell to 52.1 percent in September from 53.4 percent in August, which was the highest in almost a year.

They lowered their bond allocations for a third month in a row, with the average falling to 44.9 percent from 45.9 percent. Their allocation for cash rose to 3.1 percent from a record low of 0.8 percent in August.

UK fund managers cut equities and cash while they added bond weightings.

The survey of 10 managers showed allocation in equities slipped for the second straight month, falling to 57.2 percent from 59 percent in August, while cash fell to 4.5 percent.

Cash holdings have fallen steadily from a peak of 9.3 percent in October last year, during the market slump that followed the collapse of Lehman Brothers in September 2008.