British fund managers resumed raising their equity exposure in November, a Reuters poll showed on Thursday, with over two-thirds expecting the global equity bull run to continue throughout 2018. However, UK investors cut their US stocks allocation by a considerable 3.8 percentage points to 24.7 percent, the lowest level since August 2016, reflecting concerns about valuations in the tech sector, which is up 39 percent year-to-date.
Reuters' monthly asset allocation poll of 18 money managers was carried out between Nov. 14-28, and showed investors raising equity holdings by almost 3 percentage points to 52.8 percent. This reversed most of a cut in October's poll, but was still shy of September's two-year highs. "We retain a bullish outlook for global equities based on relative valuations, above-trend global growth and improving corporate profitability," said Kamil Amin, an investment strategist at Charles Stanley.
Over two-thirds of poll participants who answered a question on the outlook for global equities said the bull run could continue throughout 2018, after world stocks indices smashed records again in November. "Stock prices have been rising for more than eight years but bull markets don't die of old age," said Trevor Greetham, head of multi-asset at Royal London Asset Management (RLAM).
"There are few signs of the excessive growth, excessive valuation or excessive financial leverage that usually signal the approach of a bear market," he added. Justin Onuekwusi, a fund manager at Legal & General Investment Management, argued that a recession was most likely to be the cause of the bull market ending, and it was hard to see that occurring in 2018 or early 2019.
But some managers expressed concerns about complacency and valuations, prompting them to take risk off the table. US stocks were the biggest casualty of such moves, with managers top-slicing allocations after a stellar year that has seen the S&P 500 gain over 17 percent.
Instead, investors raised UK equity exposure by 1.6 percentage points to 26.3 percent, the highest level since July 2016, when asset managers were still reeling from Britain's vote to leave the European Union. They also lifted allocation to emerging market equities to 21.7 percent, from last month's 19.9 percent, while Japanese stock holdings rose to 9.9 percent, the highest since January 2017. Japanese stocks index surged to a near 11-year high in early November on strong earnings hopes.
"We still believe there is more gas in the tank for Europe, Japan, Asia and emerging markets," said John Husselbee, head of multi-asset at Liontrust. On the fixed income side, investors cut overall bond exposure by 2 percentage points to 26.7 percent. But within debt portfolios, holdings of high-yield bonds rose to 21.4 percent, a four-month high. RLAM's Greetham argued that high-yield tended to do well outside of recessions, and the probability of an inflationary downturn remained low.
However, 60 percent of respondents who answered a specific question on junk debt said the bull market was over, with yields at record lows on some bonds and multi-billion dollar outflows from the sector in recent weeks. Mouhammed Choukeir, chief investment officer at Kleinwort Hambros, noted that European junk bonds now yield less than 2 percent, compared with 6 percent just two years ago - before the European Central Bank began buying corporate bonds. "At current levels, it is hard to imagine rates going much lower," he said.
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