Global funds cut back in equities but wealthy investors stick with them, surveys show

Written by Ray Clancy

Friday, 29 January 2010 09:18

Global investors cut back on equities in January in the face of worries about the economy, potentially tighter monetary policy and in reaction to last year’s stellar gains, according to leading investment houses.

The average portfolio holds 55.1% of its assets in equities, down from 56.2% in December and level with what they held in March last year when the global rally in riskier assets began, a Reuters poll of investment houses in the US, Japan, Britain and continental Europe shows.

The reason is that investors had pulled back rather than fled. Holdings of both cash and bonds, traditional homes in times of risk aversion, eased. Bond holdings were 33.7% compared with 33.8% in December while cash dropped to 4.1% compared with 4.4%. The remaining percentage flowed into alternative investments such as property and hedge funds.

On average the 44 respondents were moderately overweight in equities and neutral in all other major assets, suggesting that the long term view of a recovering world economy is still in place.

The survey shows that US fund managers stuck with big bets on equities in January with 11 fund management firms holding an average of 64.8 % of their assets in equities, compared with 65% in December, the highest point in 2009 for equity exposure. They also cut bonds, holding an average of 29.4% in January, down slightly from 29.5% last month. Cash was cut to 1.8% from 2.1%.

Continental European investors remained wedded to equities and other riskier assets. The poll of 12 European-based asset management firms showed a typical mixed portfolio with 51.2% of assets in equities, 36.8% for bonds and 5.3% cash.

Japanese fund managers cut their average weighting for global equities. The 11 respondents held 45.8% in equities, down from 51.5% in December, but this has possibly been exaggerated by changes to the survey. They had 48.1% in bonds, up from December’s 43.9%.

British fund managers eased back allocations to equities and bonds. The 10 respondents reduced equities to 58.7% from 60.3% in December while bond allocations dropped to an average of 20.4% from 21.2%.

But equities are coming back into favour among the wealthy, with stocks representing half of private bank clients’ invested assets at the end of 2009 as the rich seek higher returns after two years of crisis, according to a new survey.

Private bank clients allocated 49% of their assets to equities in the fourth quarter of 2009 compared with 37% in the first, while cutting back on alternatives such as hedge funds and structured products, according to research from assets consultancy Scorpio Partnership.

Based on responses from 33 wealth managers who together hold nearly half of a segment estimated at $14.5 trillion, the survey estimated $7.11 trillion may have been devoted to equities and said the improved appetite for equities would last into 2010.