BENGALURU (Reuters) – Fund managers increased their recommendations for bond holdings for the sixth straight month in June, to the highest since at least the start of 2013, and cut equities for a fourth consecutive month, a Reuters poll found.
Their recommendations came even though the S&P 500 reached a record high last week on possible Federal Reserve rate cuts and hopes for progress in the long-running U.S.-China trade dispute, which has whipsawed markets for months.
Bets on Fed interest rate cuts have also pushed the dollar index down 1.7% this month, and the U.S. dollar is set for its worst monthly performance since the start of 2018.
The Reuters asset allocation poll surveyed nearly 40 fund managers and chief investment officers in Europe, the United States, Britain and Japan on June 19-27. The poll showed their global bond allocations averaged 41.3%, up from 40.8% the previous month and the highest since February 2013.
Stock allocations were cut to 46.3% from 46.7% in May, despite expectations major central banks are ready to ease policy, a U-turn in expectations from early in the year.
Evidence pointing to a slowdown in several global economies and the U.S.-China trade war have also pushed funds to suggest an increase in cash holdings to 6.1%, the highest since February.
“We see great risks from an escalation in the U.S.-China trade war – while we expect economic and political feedback to eventually force a deal, the uncertainty caused by the rivalry remains an important market driver,” said Craig Hoyda, senior quantitative analyst for multi-asset strategy at Aberdeen Standard Investments.
Doubts inflation will rise to central banks’ mandated targets have also boosted preferences for bonds, with fund managers increasing allocations to bonds steadily since the beginning of this year.
Several respondents also said this year’s cautious composition has performed almost as well as an all-stock portfolio, with less risk, as major sovereign bonds rallied.
Over three-quarters of fund managers who answered an additional question said the current environment of low interest rates and low yields will extend for at least another two years. That agrees with the findings in a separate Reuters poll of bond strategists published earlier on Friday.
A majority of fund managers said the likely change to their portfolio will be into the safety of liquid and low-risk government debt. However, some expect the current rally by equities to grind higher as major central banks loosen policy to fight an economic slowdown.
“We would prefer to wait for a dip in equities or a more convincing improvement in economic data before adding significantly to risk assets,” said Trevor Greetham, head of multi-asset at Royal London Asset Management.
A regional breakdown based on a smaller sub-set of respondents showed recommendations for allocations to North American stocks were increased to the highest since February 2013, at the expense of euro zone shares.
“The recent slowing in domestic economic growth combined with unresolved trade disputes and a sluggish Federal Reserve policy response argue for a measure of caution as we move through the summer doldrums,” said Alan Gayle, president of Via Nova Investment Management.
“But the persistent weakness overseas argues for a continued overweight to the U.S. markets.”
(Polling by Sarmista Sen and Indradip Ghosh, editing by Larry King)