European funds take risk off, bond holdings at 11 month high

European investors cut equities and pushed bond holdings to an 11-month high in July as concerns about the negative impact from eurozone and US debt crises encouraged them to cut down on risks, a Reuters poll showed on Thursday.
A survey of 17 Europe-based asset management firms outside Britain released on Thursday showed a typical balanced portfolio holding 47.0 percent of equities in July, down from 47.6 percent in the previous month. They have cut equities for five months out of seven this year.
It held 41 percent in bonds including government and corporate debt, the highest reading since August last year, compared with 39 percent in June.
Cash holdings fell for the second month in a row to 6.8 percent from 7.1 percent.
The poll was taken between June 21 and 27 when world stocks measured by MSCI fell sharply as worries intensified about the risk that the United States may default, or suffer a credit rating downgrade of its debt. This was likely to push up long-term borrowing costs, weighing on the already faltering recovery in the world's biggest economy.
A second round of bailout deals for Greece also failed to allay concerns that its debt problems would affect other peripheral countries such as Spain and Italy.
"We are tactically underweight developed equities due to the risks coming from the eurozone fiscal crisis and the debate about the US debt ceiling," said Joost van Leenders, investment specialist at BNP Paribas Investment Partners. Joost did not hold any US government bonds. Only a handful of respondents said they had a contingency plan for a possible US default. Strategies included reducing exposure to equities or looking for assets that outperform in the event of default.
Fund managers raised eurozone bond holdings to 72.0 percent, their highest in at least a year, from 69.6 percent, while cutting North American holdings to 12.1 percent, their lowest in at least a year, from 16 percent. Fund managers liked corporate bonds and disliked eurozone government bonds the most. They preferred financials within equities.