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 Equity allocations shrank month-on-month to 45.9 percent, a new
five-year low, despite a global stock market rally that saw the MSCI
World equity index climb over 7 percent in March.
Cash holdings rose to 5.8 percent from last month's 5.3 percent, but
global fund managers also added to alternatives, lifting their
allocation to 7.4 percent, the highest in at least five years.
Alternatives include hedge funds, private equity, commodities and
infrastructure.
Several managers said they were trying to avoid taking bets on
markets rising or falling, preferring to maintain a neutral stance
on risk assets, considering the volatility seen in markets in the
first quarter.
"We think the environment is challenging for risk assets. We are
underweight developed equities, particularly Europe," said Joost van
Leenders, chief economist of multi-asset solutions at BNP Paribas
Investment Partners.
Global stock markets sold off heavily in January and early February
before rallying in March, but investors were reluctant to jump back
into the fray.
Sacha Chorley, assistant portfolio manager for Old Mutual Global
Investors' multi-asset range, said he saw the greatest risk in
developed market stocks, where earnings were high and falling,
margins were peaking and valuations had little room to widen.
The survey of 49 fund managers and chief investment officers in the
United States, Europe, Britain and Japan was conducted between March
17 and 30.
Within their global equity portfolios, fund managers trimmed their
euro zone holdings by one percentage point to 18.2 percent and their
Japanese stock allocation to 18.9 percent from 20.2 percent in
February.
Growing political risks also prompted investors to adopt a cautious
stance, with the odds on Britain voting to leave the European Union
shortening in March and Donald Trump taking the lead in the race to
secure the Republican party's presidential nomination.
UNCERTAIN OUTCOME
While several investors said a British exit from the EU was not
their central scenario, the uncertainty of the outcome was expected
to weigh on domestic demand as businesses postponed investment
decisions. The closeness of some voter polls has also weighed on the
pound <GBP=>.
"Sterling seems to be pricing a high chance of Brexit given its
weakness relative to economic data," said Trevor Greetham, head of
multi-asset at Royal London Asset Management.
Poll respondents did not expect to see Trump go on to win the White
House if he secures his party's nomination, but warned that the
run-up to the U.S. presidential elections was likely to trigger
bouts of heightened market volatility.
"Obviously, markets will begin to react as we draw ever closer to
the presidential elections. At the moment it's more focused on the
Fed," said Peter Lowman, chief investment officer at Investment
Quorum, a UK-based wealth management firm.
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Some managers also expressed concern that the low interest rate
adopted by the European Central Bank and the Bank of Japan were
having only a limited effect.
"Central banks are not able to stimulate growth in the long run just
by implementing low or negative interest rates," said Jan Bopp, an
asset allocation strategist at Bank J Safra Sarasin. "What is needed
now are fiscal policy measures."
The BOJ adopted negative interest rates in January but the Nikkei is
still down almost 12 percent for the first quarter.
European equities are down 7.6 percent over the same period, despite
a bold easing package from the ECB in March, which cut rates and
expand asset purchases to corporate debt. However, it also signaled
an end to further rate cuts, prompting a sell-off in European
equities and eurozone bonds.
MORE HARM THAN GOOD?
In their global fixed income portfolios, investors cut their euro
zone bond holdings by almost 3 percentage points to 25.7 percent,
the lowest since September 2015.
They also cut their Japanese bond holdings by 2 percentage points to
12.8 percent, the lowest since June 2015.
In contrast, U.S. bond holdings rose to 39.8 percent from last
month's 37.7 percent, while UK bond holdings rose 3 percentage
points to 13.1 percent, the highest since December 2014.
Several poll participants wondered if the negative interest rate
policies adopted by some central banks were doing more harm than
good.
"I doubt they are of much practical benefit and instead reinforce
the idea that the world is stuck in a deflationary spiral," said Rob
Pemberton, investment director at UK-based HFM Columbus.
"They may also do a fair amount of damage to the profitability of
commercial banks, raising fears that we would see a systemic
financial crash similar to 2008."
Raphael Gallardo, a strategist at Natixis Asset Management, said the
amount of stimulus needed had to keep getting bigger and bigger:
"The more we prolong the stimulus, the deeper the potential downturn
when monetary stimulus stops."
(Additional reporting by Maria Pia Quaglia Regondi, editing by Larry
King)
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