Fund managers bullish on bonds but less hopeful on high yields from equities for 2010, survey shows

Global fund managers are currently bullish on bonds and less so on equities as an investment class, according to a new survey.

‘The low interest rate environment has diminished appetite for cash this quarter as investors seek stable growth in still volatile market conditions,’ said Bruno Lee, HSBC’s regional head of wealth management for Asia-Pacific.
‘While equities will continue to provide growth opportunities, investors are less likely to expect the returns they enjoyed from the sharp rebound in global markets in midyear,’ he added.

The survey, which covered 13 of the world’s leading fund management houses accounting for $3.72 trillion of total global funds under management, found that overall, fund managers in the survey were less optimistic about equities as an investment class with fund managers going underweight rising from 22% in the first quarter of the year to 40 % this quarter.
Sectors seeing some of the biggest shifts in sentiment included European and Japanese equities. For European equities, 36% of respondents took an underweight view compared with 22% in the first quarter of the year.

Fund managers also went negative towards Japanese equities with 70% taking an underweight view compared with 33% in the first quarter of 2009. Over half of fund managers polled, some 56% are holding a positive view on bonds in the fourth quarter of 2009, up from 30% in the third quarter.
Seven in 10 respondents, some 71%, are bullish on global emerging markets and high yield bonds, against 43% in the previous quarter, the survey also found.
‘Bonds have performed strongly this year with the high-yield sector leading the way. However, with continued economic uncertainty, investors may consider taking positions in the high grade corporate sector with short to medium tenors to reduce interest rate risk,’ he added.

At the end of the third quarter, FUM increased by $356 billion, or 10.6%, from the previous quarter. Equity funds posted an increase of $208 billion, contributing over half, 58.5%, of overall FUM growth in the third quarter. High yield and emerging market bonds posted the biggest net inflows as both asset classes performed strongly in the third quarter.

Among equity funds, HSBC said Asia-Pacific, excluding Japan, equities and North America equities posted the biggest net inflows in the third quarter amid signs that economic recovery was broadening. Emerging-markets equities and Greater China equities continued to record inflows albeit at a slower pace, the survey said.