UK investors buy more stocks, cut bond holdings

British investors put more money into stocks in August and, wary of low yields, cut their allocation to bonds to its lowest since July 2014, a Reuters poll found. The monthly survey of 10 investment managers based in Britain showed average exposure to shares grew to 53.9 percent, its highest since April, from 52 percent in July. Bonds' share in their portfolios fell to 22.3 percent from 23.9 percent last month.
The poll was conducted between August 10 and 27, coinciding with sharp swings in global stocks on concerns that the world's second-largest economy might be slowing more than previously thought. An August 11 devaluation of the yuan fed these fears. However, investment in stocks grew far more slowly than in July when it rose by the most in a year. "It might be that after a six-year bull market, which historically is a lengthy time period, the markets need to take a breather and give some of the returns that we have seen over that time period back," said Peter Lowman, chief investment officer at Investment Quorum in London.
"Conversely, fundamentals are much better than they were back in 2008, therefore investors are likely to return and reinvest some of their current overweights in cash back into the equity markets," he added. The biggest beneficiaries of the shift into stocks were US and Canadian shares, whose average weighting in UK funds' global equity portfolios rose to 31.6 percent, the most since June 2014, from just 26.6 percent last month.
Expectations that the Federal Reserve will raise interest rates as soon as next month have gradually diminished throughout August and took a further knock on Wednesday when New York Fed President William Dudley said the threat to the US economy posed by market turmoil made a September hike "less compelling". The biggest portion of UK investors' global bond portfolios was in investment-grade corporate debt, at 41.1 percent, a 7 percentage point increase on the month. Allocation to government debt also rose, to 29.8 percent, while the share of high-yield bonds and other credit dropped compared with July.
Bonds' share of investor portfolios have been falling since hitting a 28-month peak in May, when yields rose because of increased inflation expectations. UK investors' allocation to cash fell to 6 percent from 7.1 percent in July, property's share rose to 5.1 percent from 4 percent and alternative investments, which include assets such as wine, dipped to 12.7 percent from 12.9 percent.