British investors cut their bond holdings to the lowest level in more than a year in July as they braced for the winding down of the US Federal Reserve's monetary stimulus programme. In a monthly survey of 14 British-based investment managers, the average allocation to bonds in global balanced portfolios fell to 23.8 percent in July from 24.4 percent in June, as funds sold assets likely to fall in value as economies pick up.
Equity holdings were largely flat at 53.9 percent after a steep fall last month on prospects the Federal Reserve will start scaling back its $85 billion a month of bond-buying, known as quantitative easing or QE, later this year.
"The markets know it is coming but still reacted badly," said Lee Robertson, Chief Executive of Investment Quorum. "The days of QE are numbered, particularly as news improves, so we should expect some bumpy times ahead."
The poll, which was taken between July 23 and 29, showed cash holdings in global balanced portfolios edged higher, to 9.2 percent from 9 percent in June, while real estate rose to 2.3 percent from 2.1 percent.
Alternatives, which include hedge funds and commodities, were down to 10.8 percent from 11 percent.
Federal Reserve chief Ben Bernanke first hinted in May that the US central bank would start to slow the pace of its money-printing later this year, ending the programme by the middle of 2014, provided US economic data continues to improve.
After a bout of volatility, markets are starting to accept "the accelerator pedal may not be applied too quickly," Berry Asset Management's chief investment officer Mark Robinson said.
Elsewhere, the euro zone was still a concern for investors, having "never been off the radar" according to Matthew Farrell, an investment specialist at London and Capital.
Unease has grown in recent weeks, after a political crisis in Portugal, the near-collapse of the Greek government and bad news from Spanish and Italian banks.
"Whether or not the euro zone crisis is manageable largely depends on the outcome of the German elections in September," said Andrew Milligan, head of global strategy at Standard Life.
"How strong the Merkel coalition is will very much determine the speed with which Europe can get to grips with a series of issues." Chancellor Angela Merkel's centre-right coalition is leading polls ahead of the September 22 vote.
Other worries include an economic slowdown in China - one of a recurring set of issues about which markets look somewhat complacent as they enter the quiet summer period, said Robert Pemberton, investment director at HFM Columbus.
"Market valuations are pricing in a 'things are gradually improving' outcome for both global growth and financial market stability and so any unexpectedly bad news (...) could lead to sharp falls.
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