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U.S. funds raise equity stakes, euro zone at three-year high - Reuters poll

Published 30/04/2014, 14:40

By David Randall

NEW YORK (Reuters) - U.S. fund managers increased recommended equity holdings in April for the first time in three months, driven by a rise in euro zone share allocations to a three-year high, according to a Reuters poll on Wednesday.

The survey of 12 asset management firms, conducted April 14-29, also showed fund managers trimming U.S. and Canadian shares, as well as allocations to bonds.

The percentage of U.S.-based stock portfolios invested in companies in the euro zone rose 0.7 percentage points, to 15.4 percent, in April, the highest in more than three years, along with minor increases to emerging Europe and Asia ex-Japan.

But on the whole, average allocations to equities in a model global portfolio have hovered around 56 percent for 10 months - well below the 65 percent at the start of 2013.

It is also well below the average of just over 62 percent over the past seven years.

Fund managers were more optimistic about Europe's prospects for economic recovery, despite lingering worries that very low inflation could slip into outright deflation.

Further deterioration in the inflation outlook could eventually force the European Central Bank to print money, like the U.S. Federal Reserve and Bank of England have done, which would give equity markets a further boost.

"The downside risks to the area are clearly diminishing," said Alan Gayle, a portfolio manager at RidgeWorth Investments in Virginia, who oversees approximately $400 million (237.17 million pounds).

"Investors are seeing (the euro zone) as an area that has not really performed well along with the current equity bull market, and see it as now having an opportunity to catch up," he added.

The Stoxx 600 index, which tracks the performance of companies in the eurozone, has gained around 3 percent for the year to date, while the S&P 500, the benchmark for the U.S. equity market, is up around 2 percent over the same time.

Over the last three years, however, the Stoxx 600 index has gained 22.5 percent, well behind the just over 40 percent rally in the S&P 500.

There are also signs that fund managers' renewed interest in fixed income since the start of the year may be waning.

They took overall bond allocations in a global model portfolio down to a year low of 34.8 percent of assets from 35.3 percent, led by British and Japanese government bonds.

However, recommended stakes in U.S. and Canadian fixed income rose as equity allocations there fell.

Government and corporate bonds issued in these two countries rose to 67 percent of recommended global bond portfolios, the highest level since February 2013.

(Polling and analysis by Sarbani Haldar and Diptarka Roy; Editing by Ross Finley and Toby Chopra)

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