Debt is in, stocks are out

INVESTMENT TRENDS: Cautious investors moved away from equities in July.

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Caution remained the watchword for leading global investors in July although a search for yield drove many into top quality corporate debt, Reuters asset allocation polls showed on Thursday.

Surveys of 51 leading investment houses in the United States, Britain, Europe ex-UK, and Japan showed investors cutting back on equities and raising cash and bond holdings.

Equities were at 50.6 percent of a typical mixed-asset portfolio, bonds at 36.0 percent and cash at 5.8 percent. June figure's were 51.8 percent, 35.1 percent and 5.2 percent, respectively.

Changes in the sample may have exaggerated the move away from equities, but there was little indication in the polls that investors were shaking off this year's standoffishness to risk.

This is despite some degree of moving on from the euro zone debt crisis and signs that Europe's economy may be more robust than earlier thought. The US economy appears to be slowing, raising concerns about global recovery.

"Concerns about the euro government debt crisis seem to be receding. However, most warning signs are still flashing red," said Mauro Ratto, head of investment management in Europe and Asia at Pioneer Investments in Dublin.

Investors have not, however, battened down the hatches for a sharp downturn.

One example of this can be seen in the demand for corporate debt, which would imply a degree of positive conviction about the state of global corporate finances.

Exposure to investment grade bonds rose to 22.6 percent within bond allocations in July from 19.7 percent in June. High yield debt was less popular, however.

David Joy, chief market strategist of Columbia Management Investments, suggested investors were being driven by a belief that the economy was not heading too far down -- into another recession, for example -- and that traditional safe haven investments were overpriced.

"We don't expect a double dip. Because of that, we don't see a lot of value (in Treasuries) at these levels," he said.

Regionally

US fund managers lifted their exposure to equities and corporate bonds slightly in July.

The poll of 12 US-based fund management firms found they held an average of 65.0 percent of their assets in equities, compared with 64.8 percent a month earlier.

Bond exposure rose to 29.8 percent from 29.5 percent. Cash dropped to 2.0 percent from 2.2 percent.

Japanese fund managers cut their weightings for equities to the lowest in more than 11 years and moved into cash.

The Reuters poll of 13 fund managers showed an average weighting for equities at 44.2 percent, down from 45.1 percent the previous month. The bond weighting fell to 48.2 percent in July from 49.2 percent the previous month and cash positions jumped to 4.7 percent.

European investors boosted fixed income allocation to a 2010 high.

The poll of 15 Europe ex UK asset management firms showed a typical mixed portfolio holding 40.6 percent in bonds this month, which include government and corporate debt, compared with 37.4 percent in June.

The allocation to equities stood at 46.8 percent, compared with 47.9 percent in June, when the survey polled 13 asset managers. This change in sample exaggerated the move, which otherwise would put equities slightly higher.

British fund managers continued to seek out the security of cash and bonds while equities remained relatively out of favor.

The survey of 11 fund managers showed exposure to cash, bonds and property increased since the previous month.

Equity holdings were 46.4 percent compared with 49.2 percent, bonds rose to 25.5 percent from 24.5 percent and cash also rose, to 9.6 percent from 8.7 percent

- Reuters