Leading global investors slashed North American bond holdings to a 3 1/2-year low in November as expectations for dwindling U.S. monetary stimulus encouraged them to buy developed-market equities, a Reuters survey showed on Friday.
The monthly poll of 52 leading investment houses from the United States, Japan and Europe also showed Latin America is bearing the brunt of the investor shift out of emerging markets, with its equity weighting hitting nearly 4-year lows.
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The respondents to the poll, conducted Nov 18-27, had 51.1 percent of their portfolios in equities, its highest since February. A 20 percent-plus rally in developed equities this year has yet to sap their appetite for equities.
Bond holdings fell to 36.3 percent, levels not seen since June 2012.
Allocation to U.S. and Canadian bonds fell to 34.7 percent, their lowest since May 2010. The region's fixed income is seen as most vulnerable to the Federal Reserve's plan to scale back its $85 billion a month bond purchases early next year.
"The pace and scale of removing the massive global monetary stimulus remains one of the key risks for markets and various investment strategies over the coming months," said Berry Chief Investment Officer Mark Robinson.
"However, there are some encouraging signs that economic conditions are improving in general, consumer confidence too, and this will hopefully protect markets from any major setback next year."
U.S. Treasuries are one of the worst-performing assets this year, falling 5.7 percent since January. The benchmark 10-year yield rose close to 3 percent in September.
The prospect of the Fed tapering has hit emerging economies with large current account deficits which had benefited the most from cheap money. Slow growth in China has also sapped demand for commodities, weighing on many emerging economies.
Equity holdings in Latin America -- whose No. 1 economy, Brazil, has a large current account gap -- fell to 1.4 percent, the lowest since at least January 2010.
"Downside risks are also present in emerging markets due to past credit surges with structural reforms badly needed," said Steyaert Steven, a senior portfolio specialist at ING Investment Management.
BONDS OUT OF FAVOUR
U.S. fund managers boosted their equity holdings to 56.4 percent, making the first increase in stock holdings since August. But the average equity stake remains about 10 percentage points below the 64.7 percent of portfolios seen at the beginning of the year.
Continental European funds cut their bond holdings to five-year lows of 37 percent. Equities were the primary beneficiaries of the retreat from fixed income, representing 48.1 percent of the portfolio -- the lowest since November 2012.
Japanese fund managers maintained their equity weighting at a 1 1/2-year high of 44.2 percent. They boosted euro zone bond holdings to the highest since March 2011 while cutting North American bonds to a record low.
Average equity positions of British fund managers rose to 55.5 percent, while bond holdings held steady.