U.S. funds keep global portfolio steady in September: Reuters poll

[September 29, 2017]  By Rahul Karunakar

BENGALURU (Reuters) - U.S. fund managers kept their model global portfolio steady in September on concerns most asset prices look expensive as the global economy is only moving at a modest pace, a Reuters poll found.

The survey of 13 fund managers, conducted Sept 20-28, showed recommended equity allocations were cut slightly to 56.7 percent from 56.8 percent, with exposure to bonds pushed up to 34.8 percent from 34.7 percent.

A previously more common split between holdings of stocks and bonds - 60:30 - has not been visible in recommendations for several years now and average equity allocations remain relatively modest, given where indexes are trading.

That is mostly because stock and bond prices have broadly risen in tandem on central bank cash, which have stretched valuations of most asset classes.

The global economy has picked up momentum this year but there is still a gap between what major central banks target - inflation - and the shift in their bias toward policy tightening, something fund managers see as a concern going forward.

"While the current macro environment and outlook appear better than many of the younger market participants can remember, the last time a similar combination prevailed was in 2006 – and that didn't end well," said a fund manager at a very large U.S. investment firm.

"Then as now, when the macroeconomic environment is as good as it gets and valuations are tight, it is time to emphasize caution, capital preservation and diversified sources of carry away from the crowded trades."

Subdued inflation will keep a check on sovereign bond yield rises over the coming year, according to a separate Reuters poll of bond strategists and analysts on Friday.

In the latest poll, recommendations for non-traditional investments, such as derivatives and commodities, were steady at 4.2 percent. Allocations to property holdings were up slightly at the cost of cash.

This month again, regional breakdowns suggested an increase in exposure to euro zone stocks to the highest in over six years at the expense of U.S. equities, which were the lowest since April 2012.

(Polling by Rahul Karunakar and Vartika Sahu; Editing by Toby Chopra)

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