US fund managers recommended an increase to equity holdings in February to the highest in more than 4-1/2 years, despite a deep sell-off in global stocks, according to a Reuters poll that also showed a trim to bond allocations. World stocks, which have been thundering along in a near-decade-long bull run, fell sharply earlier in February led by US Treasury yields rising to a four-year high on the belief that major central banks are now moving in the same direction, at varying degrees of policy tightening.
Still, the survey of 12 fund managers, conducted February 13-27, showed equity allocations in a model global portfolio rose to 57.8 percent from 57.1 percent, the highest since June 2013. That is in line with separate Reuters polls of more than 200 equity strategists and brokers which showed global stock markets will rise in 2018 and that the era of low inflation, bond yields and volatility has come to an end.
Since August, US fund managers have added one percentage point to their overall equity exposure, preferring to focus on the recovering world economy and strong corporate earnings. "The economic reports...combined with the newly enacted tax reform legislation, suggest future upside surprises to both economic growth and corporate profits. The path of stock prices, while higher on balance, may be rockier this year," noted Alan Gayle, president at Via Nova Investment Management.
"We remain positive on our outlook for the economy and the stock market for the remainder of 2018 and see market dips as buying opportunities. However, we are less sanguine on the outlook for bonds." The latest poll also showed recommended allocations to bonds were trimmed to 34.9 percent from 35.1 percent in January on concerns the US administration's tax cuts will push the government to borrow more to fund the budget gap.
"With the Treasury deficit and borrowing expected to increase this year, simple supply/demand pressures point to higher bond yields and lower prices.
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