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Investors more bullish on stocks ahead of New Year

By Benn Bathgate

Thursday 6th January 2011

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Investors are heading into 2011 in a bullish mood, with equity holdings hitting a 10-month high, according to the latest Reuters poll of leading global investment houses.

The survey of 55 leading investment houses in the US, Europe, the UK and Japan found investors Holding 54.1% of a typically mixed asset portfolio in stocks in December, up from 53.25 in November and the highest since 55.4% in February.

Bond holdings were reduced to 33.9%, the lowest since February, from 34.2% in November.

Cash was at 3.9%, down from 4.6%.

A combination of improving economic data and a belief in future, robust, corporate earnings has lifted investor appetite for equities over the past few months.

"People are coming off the sidelines and buying stocks," said Fifth Third asset Management president Keith Wirtz.

There was also sign of risk appetite in an increased exposure to riskier, higher yield bonds.

At the same time concerns have risen that yields on benchmark government bonds are too low, providing little return and threatening a sell-off.

Investors in the Reuters poll did reduce their overall exposure to bonds. They also favoured US and eurozone government debt over most emerging markets, which have been popular this year.

Exposure to emerging market debt was 8.1% of a bond portfolio for the month, compared to 9.6% a month earlier.

Investors also regained composure about eurozone government bonds following the crisis over Ireland's debt. They raised exposure within a bond portfolio to 31.5% from 31.2%, though these figures remain well below the more than 42% seen at the start of the year.

Regionally, US fund managers increased their equity holdings in December to one of the highest points this year on signs of a swifter economic recovery.

The poll, which surveyed 13 US-based fund management companies, found firms boosting their equity allocations for the fourth month in a row to an average 65%, 2% up on November.

Bond exposure was scaled back for a fourth consecutive  month, to 27.9% of their portfolios in December, compared to 30.2% last month.

They also lowered their cash position to the lowest level in more than a year.

Japanese fund managers held on to most of their global stock weighting in the month and raised their bond allocation to the highest level since September on the view the recent falls in bond prices were overdone.

Asset managers' average weighting for global equities in the Japanese poll fell only 0.1% from the month earlier to 47.1%. The weighting for bonds rose to 48.3% in December from 46.9% last month and cash was at 2.5%.

European fund managers lifted equity holdings to an 11-month high and also boosted bonds.

The survey of 17 Europe-based asset managers found a typical mixed portfolio holding 50.1% in equities in December, compared to 49.6% in November.

Bond holdings were at 37.5%, compared to 37.3% last month. Cash holdings fell to 5.3% from 6.1%, the lowest level since January.

British fund managers increased their exposure to equities, particularly domestic UK stocks, and reduced their bond holdings.

The poll of 12 British fund managers found the average allocation to global equities climbed to 54.2% from 52.8%.

Bond holdings fell from 22.5% to 22% and exposure to UK stocks within equities jumped from 12.6% in November to 16.3%.

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