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They
also cut their exposure to UK equities by two percentage points
in May to 26.7 percent, or the lowest since February, according
to a Reuters poll. The latest monthly survey of UK-based funds
was conducted between May 16-25.
While betting markets suggest that Britons will opt to remain in
the European Union at the June 23 referendum, and opinion polls
now show the "Remain" camp with the upper hand, fund managers
seem to be taking no chances.
A Bank of America Merrill Lynch survey found this month that
holdings of UK equities were at 7-1/2-year lows and data this
week showed that the very uncertainty fueled by the referendum
run-up had caused a fall in British business investment for the
first time in three years.
All those fears are being amplified by the global backdrop of
sluggish economic growth and the expectation - held by all those
who responded to a Reuters question - that the U.S. Federal
Reserve will raise interest rates this year.
"Markets are prone to shocks over the summer," said Trevor
Greetham, head of multi-asset at Royal London Asset Management,
adding he was underweight U.S. and UK equities despite a
moderately positive stance on stocks as a whole.
Broadly, the share of equities in funds' balanced portfolios
remained stable, thanks to an increase in exposure to U.S. and
euro zone markets, which came at the expense of the UK.
Overall bond and cash allocations rose by around one percentage
point each, the latter standing at 8.8 percent.
Investors acknowledged that the referendum may also provide
opportunities and Greetham said he saw the greatest opportunity
in an overweight sterling position.
"While the markets may be factoring in a Remain vote, they are
not factoring in the economic consequences of a Remain vote -
namely a pick up in business and consumer confidence and the
start of base rate hikes, possibly as early as November," he
added.
But fund managers were cognizant of other risks dogging world
markets - the U.S. presidential election in November, higher
U.S. interest rates, poor corporate profitability and weak
growth in the developing world and the euro zone.
Business growth in the euro zone bloc slowed to 16-month lows in
May, with weakness concentrated in the smaller peripheral
economies.
"Contagion risk into Europe is a significant risk in our view:
specifically the Brexit vote will likely give rise to more calls
for referendums in other nations which could undermine the
stability of the Euro project," said Sacha Chorley, a portfolio
manager at Old Mutual.
(Additional reporting by Claire Milhench)
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