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 A monthly survey of fund managers in the United States, Japan,
Europe and Britain found the average allocation to cash in balanced
portfolios jumped 1-1/2 percentage points to 7 percent -- the
highest since May 2012. Forty-four institutions took part in the
poll.
Investors typically increase holdings of cash when they expect
markets to fall, often at the expense of more volatile assets such
as stocks.
The average allocation to equities remained unchanged at 48.2
percent, though bond holdings fell to 36.6 percent from 38.2
percent. Holdings of property were down to 1.9 percent from 2.6
percent while exposure to alternative assets, such as hedge funds
and private equity, rose to 6.4 percent from 5.3 percent.
"The overriding feature for 2015 will be bouts of higher volatility
and risk-off episodes that mean investors will need to be far more
wary," said Ashok Shah, investment director at British investment
manager London & Capital.
The polling period was dominated by the European Central Bank's
announcement last week that it would start buying bonds under a 1
trillion euro quantitative easing program from March with the aim of
stimulating euro zone growth and inflation.
In contrast, monetary authorities in the United States are widely
expected to start raising interest rates, bringing an end to an era
of monetary stimulus launched in response to the 2008-9 financial
crisis.
UNPREDICTABLE
Divergent monetary policies in major economies, geopolitical risk
around Russia, a slowing Chinese economy and political uncertainty
in Europe after Greeks elected an anti-austerity government, make
markets unpredictable, investors said.
"Our portfolios have been long the dollar for some time," said
Andrew Milligan, head of Global Strategy at Standard Life
Investments. "With the ECB'S announcement on QE we are debating the
extent of euro weakness in 2015-16, which partly reflects the
decision the Fed will need to take on interest rates in a few
months."
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The poll was taken from January 16-29, during which time world
stocks rose around 1.5 percent. The ECB's QE announcement,
which had been widely expected, was on Jan. 22.
The U.S. S&P 500 index was little changed over the survey period,
having retreated more than 3 percent from a record high set at the
end of 2014.
Emerging market stocks hit a six-week high and advanced more than
1.5 percent during the survey period, despite fallout from Russia's
economic and political situation and worries about slowing Chinese
economic growth.
U.S. fund managers recommended increasing cash allocations to their
highest in over seven years, to 10.1 percent from 5.1 percent last
month, the highest since at least May 2007.
British fund managers also boosted the amount of money kept in
safe-haven cash as well as alternative investments.
Hedge funds and other alternative assets can benefit from volatile
markets, in part because they are able to profit from falling prices
through mechanisms not available to conventional funds, such as
short selling.
Meanwhile, European investment managers placed their bets firmly on
stocks in January, anticipating an imminent lift to corporate
profitability from the ECB's stimulus measures.
Japanese fund mangers still want to put more than half their assets
under management into bonds, despite falling yields, expecting a
prolonged period of low interest rates around the world, the Reuters
survey showed.
(Reporting by Swati Chaturvedi and Siddharth Iyer; Editing by
Catherine Evans)
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