U.S. funds upbeat on euro zone; allocations largely unchanged: Reuters poll

[April 30, 2015]  By Siddharth Iyer

(Reuters) - U.S. fund managers tweaked their recommended global allocations in April to reflect improving sentiment in the euro zone but largely left maintained the status quo, a Reuters poll found.

Recommendations were mostly unchanged from March's model portfolio, in which money managers cut global equity exposure and shifted to fixed-income investments as the European Central Bank opened a bond-buying program.

The model portfolio for April comprised 55 percent in equity holdings and 36 percent in bonds, with the remainder spread fairly evenly between cash and alternative assets. A small percentage was invested in property.

The most notable change this month is that recommended allocations in euro zone shares increased to 11.4 percent from 11.0 percent, the highest in six months. The increase came at the expense of U.S. and Canadian shares.

"The international space has become more attractive this year and we have significantly increased our equity allocations there," said Alan Gayle, fund manager at RidgeWorth Investments.

"We particularly like Europe, where attractive valuations are being helped by quantitative easing and better-than-expected economic reports."

In March, to restore economic growth and combat deflation, the European Central Bank started buying around 60 billion euros a month of mostly government bonds. The program is scheduled to run until September next year.

Recent data showed euro zone bank lending stopped shrinking and rose slightly for the first time in three years during March. Consumer inflation expectations rose for a third straight month in April.

The ECB buying program has helped drive stock markets in Europe like Germany's DAX <.GDAXI> to rally nearly 17 percent so far this year.

Although fund managers still recommend keeping a majority of equity allocations in North America, they have been steadily cutting that this year.

Weakening U.S. economic growth and a relatively strong dollar since the beginning of the year has weighed on domestic firms' profits and share prices.

U.S. growth stalled in the first quarter to just 0.2 percent - matching the most pessimistic view in a Reuters poll - as harsh weather curbed consumer spending.

The Federal Reserve downgraded its view of the U.S. labor market and economy on Wednesday in a policy statement that suggested the central bank may wait until at least the third quarter to begin raising interest rates.

Until recently, Reuters polls had suggested the Fed would act in June. A survey last week changed that until the third quarter. Markets are not pricing in a hike until December.

Within the fixed-income portfolio, fund managers recommended almost 70 percent in the U.S. and Canadian market, with European and Japanese being the next most attractive investment.

Allocations to high-yielding bonds were cut to the lowest for at least three years. Government bond recommendations rose slightly to 40.8 percent, suggesting fund managers have a risk-averse approach to poor economic data.

(Additional reporting, analysis and polling by Ashrith Doddi; Editing by Larry King)

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