British investment managers pared back their holdings of government debt in July and pumped more money into the equity markets before an expected rise in some central bank interest rates.
A monthly Reuters poll of 11 UK-based investment officers and fund managers found the average allocation to government debt dipped to 23 percent from 27.1 percent in June. Equity allocations continued to dominate global portfolios, rising to 60.1 percent from 55.2 percent a month earlier.
Within fixed income, allocation shifted away from government securities towards the debt of investment-grade companies by an average of 5.7 percentage points to 46.2 percent, from 40.5 percent the month before.
"Clearly, government securities face some headwinds as higher rates are predicted," said Peter Lowman, Chief Investment Officer at Investment Quorum.
Both government and high-yield bonds would struggle to give investors an acceptable return once they do, especially with the likelihood of higher inflation, he said, citing a preference for floating-rate notes, index linkers and emerging market debt.
For HFM Colombus investor director Robert Pemberton, however, the whole of fixed income offered little attraction.
"There is little value in fixed income. Gilts, Treasuries and Bunds continue to trade at very low yields, corporate spreads on investment grade bonds are now tight whilst high yield is looking an increasingly dangerous 'crowded trade'."
Exposure to bonds and cash suffered slightly from the ongoing success of equity, which fell short of the highs of 2013 but still remains a popular bet for managers as the economic backdrop steadily improves.
"Global equity markets remain fairly resilient against a backdrop of geo-political risks; however, we would continue to support equities, especially those companies with good management, strong balance sheets, global franchises and rising dividend yields," said HFM's Pemberton. Alternatives, such as private equity, commodities and hedge funds, took the biggest hit. Allocations dropped to 9.3 percent from 11.7 percent a month before. Property allocations remained at 3.8 percent.