Reuters Poll: U.S. Managers Keep Equity Allocations Steady Near Record Lows

Nov 30 2015 | 8:14pm ET

By Aaradhana Ramesh and Krishna Eluri (Reuters) - U.S. fund managers kept their recommendations for equity holdings steady for a third month in November, and near their lowest since the financial crisis, pending a widely-expected Federal Reserve rate hike, a Reuters poll found.

Global equity allocations accounted for 51.4 percent of this month's portfolio, barely changed from 51.3 percent in both September and October, with bonds trimmed slightly to 37.3 percent from 37.6 percent.

Those are near record lows and highs, respectively, for survey data going back to 2007. That stands in sharp contrast to recommended levels in early 2010, of above 66 percent for equities and below 30 percent for bonds.

Steady overall data recently suggest a holding pattern since the Fed decided against raising interest rates at its September meeting. It is nearly a decade since its last rate rise. Since then, U.S. stock markets have rallied and are near record highs.

Still, fund managers trimmed equity recommendations for nearly all regions, except for the euro zone and emerging Europe, which they increased to 14.5 percent from 13.4 percent and to 3.3 percent from 1.5 percent, respectively.

"We are encouraged by the steady economic recovery in the European Union as a further sign of broader global stability. This favors the equity market as we approach 2016," said Alan Gayle, senior investment strategist at RidgeWorth Investments.

Gayle kept his global equity allocation steady in November, but increased his preference for North American stocks.

Overall North American equity recommendations were downgraded to 67.8 percent from 69.1 percent, the lowest since December 2014, and fund managers' preference for North American bonds were cut to 70.0 percent, the lowest in seven months.

"The bond market represents more of an evolving risk given the likely onset of Federal Reserve rate hikes near-term, which in turn will lead to speculation as to when the rest of the world will follow," said Gayle.

Wealth managers suggested reducing investment in government securities significantly, to 42.8 percent in November from 48.2 percent, while upgrading investment grade and high-yield allocations as they look for better returns.

November's model portfolio highlights the divergent monetary policy paths likely to be undertaken by the European Central Bank and the Fed in the coming months.

While markets are now pricing in an around 75 percent chance of a Fed rate hike in a few weeks, expectations have been growing that the ECB will expand its quantitative easing program. 

Bond allocations for the euro zone increased to 12.7 percent from 11.8 percent.

Asset managers also increased their recommendations for cash holdings and property, to 4.1 percent from 3.9 percent and to 2.5 percent from 1.3 percent, respectively, while alternate investments were reduced to 4.8 percent from 5.8 percent.

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