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 The shift comes as the dollar's rally to 12-year highs shows signs
of flagging, hurt by soft U.S. economic data and efforts by European
central banks to stimulate their own economies, fund managers and
analysts said.
Global bond fund managers pay close attention to countries' relative
economic performance, while their own performance can turn sharply
on central bank moves. The dollar has benefited so much from the
disparity between U.S economic performance and much of the rest of
the world's, that it's difficult to think it will be maintained,
said Jack McIntyre of the $3.9 billion Legg Mason BW Global
Opportunities Bond Fund..
"The dollar has had an unprecedented move in such a short period of
time," said McIntyre, who said he cut his fund's exposure to the
dollar to 37 percent, down from 43 percent in early March, by
removing currency hedges. "The rate of the appreciation of the
dollar has to slow. It's not sustainable. We've moved so far, so
quickly."
Global bond funds report, as a percentage of their total assets,
their exposure or allocations to various currencies. For dollars,
for instance, the figures would reflect fund holdings of U.S.
corporate and government bonds, dollar-denominated bonds issued by
foreign governments and corporations, and the effects of instruments
like currency hedges.
Four of the 10 fund managers that Thomson Reuters' Lipper unit said
posted the biggest increases in their dollar allocations in 2014
told Reuters they have since trimmed their positions. One increased
his exposure, while the other five declined to comment.
One of the biggest dollar enthusiasts, the $398 million Prudential
Global Total Return Fund <GTRAX.O>, cut its dollar exposure to 54
percent of assets at the end of February, down from 58 percent at
December 31, Prudential said.
"We're seeing the strong U.S. dollar as a headwind" on the U.S.
economy, by making exports more expensive, said Michael Collins,
manager of the fund. He said he felt the dollar market was also
showing signs of becoming top heavy. "It's a crowded trade, and that
always makes us a little nervous," he said.
The fund's dollar exposure was just 27 percent at the end of 2013,
Prudential said.
Other managers who cut exposure included Erik Weisman of the $647
million MFS Global Bond Fund and Christopher Diaz of the $361
million Janus Global Bond Fund. Diaz said he cut some dollar
exposure based on what he called "dovish" recent signals from the
Fed that it could wait longer than expected to raise rates.
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Higher rates could draw in foreign investment and further boost the
dollar's value. Janus put the fund's dollar exposure at 57 percent
at the end of February, down from 76 percent at the end of December.
The pattern matched a broader skepticism. Overall, fund managers are
about evenly split on whether the dollar will strengthen, said
Gregory Dowling, the head of research for Fund Evaluation Group.
That is a change from several months ago when, he said, a majority
expected the dollar to keep rising.
"People are starting to say, maybe it (the dollar) has come too far,
too fast," he said.
The dollar index , measuring the greenback's value against a basket
of major currencies, closed Tuesday up 23 percent since June 30,
helping returns in funds with higher dollar allocations. Yet the
index has slid a bit off its mid-March highs and has been hurt by
weak U.S. jobs data.
The manager among the group who sounded most optimistic about the
dollar was Michael Kushma of the $245 million Morgan Stanley Global
Fixed Income Opportunities Fund. He said he has increased the fund's
dollar exposure to about 99 percent currently from 97 percent at
Dec. 31.
Kushma said positive U.S. employment trends and low energy prices
still make a Fed rate increase by early next year likely while
stimulative actions by foreign central banks will take a while to
reach their economies.
"There's still not a lot of good news outside the U.S, and we think
the bad news in the U.S. is temporary," he said.
(Reporting by Ross Kerber; Editing by Richard Valdmanis and John
Pickering)
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