European funds shun bonds as holdings reach five-year low - Reuters poll

By Shadi Bushra

LONDON (Reuters) – Continental European funds boosted equity exposure and cut their bond holdings to five-year lows in November, as concern grew the Federal Reserve’s plan to slow its monetary stimulus would push up yields, a Reuters survey showed on Friday.

The 19 fund managers polled for the monthly asset allocation poll held 37 percent of their portfolios in bonds, the lowest proportion since at least October 2008.

Equities benefited most from as managers retreated from fixed-income assets. They represented 48.1 percent of fund managers’ portfolios, a point not seen since November 2012.

This month’s data put bond holdings almost 2 1/2 percentage points below their long-term average and equities just about the same figure above theirs.

Asset managers believe the trend, driven by ultra-low bond yields and a 20 percent-plus rally in developed-market equities this year, will accelerate when the Fed begins to pare back its bond-buying programme next year.

“We continue to assume a gradual shift from fixed income to equities,” said Steyaert Steven, a senior portfolio specialist at ING Investment Management.

“Most likely, however, we will have to wait for the tapering to really start, probably in March 2014, before investors fully recognise that it makes less sense to continue to invest in government bonds.”

Within equities, the managers increased holdings in North America, the euro zone and Japan, at the expense of Britain and emerging markets. They liked IT services the most and were underweight energy, consumer staples and utilities.

Government securities still made up almost half of global fixed-income portfolios, but high-yield, or ‘junk’ bonds, accounted for about a fifth, their largest share since at least February 2010. That may reflect a search for the kind of yield that government bonds rarely offer anymore.

The poll, which was conducted from Nov 18-27, also showed emerging-market stocks taking a hit as the prospect of Fed tapering becomes more imminent.

Holdings of Asian equities excluding Japan matched their lowest level recorded in August 2010, at only 6 percent.

The respondents said the greatest risk to their portfolios were a political brawl over the U.S. debt ceiling early next year, premature Fed tapering, or too-tight monetary policy from the European Central Bank.

(Reporting by Shadi Bushra; Editing by Larry King)

European funds shun bonds as holdings reach five-year low - Reuters poll