Investors enter 2011 in bullish mood - Reuters poll

(Reuters) - Investors are entering 2011 in a relatively bullish mood, raising equity holdings to a 10-month high, increasing exposure to high-yield credit and cutting back on government debt, Reuters polls showed on Wednesday.

Within bond portfolios, however, concern about the cost of U.S. Treasuries and the stability of euro zone debt, did not show up dramatically.

Allocations to emerging market debt were cut instead.

Surveys of 55 leading investment houses in the United States, Europe ex UK, Japan and Britain showed investors holding 54.1 percent of a typical mixed-asset portfolio in stocks in December. That was up from 53.2 percent in November and the highest since 55.4 percent in February.

Bonds were cut to 33.9 percent, the lowest since February, from 34.2 percent in November. Cash was at 3.9 percent, down from 4.6 percent. A combination of improving economic data and a belief in future, robust, corporate earnings has lifted investor appetite for equities over the past few months. The MSCI all-country world stock index was flirting with levels last seen in September 2008 on Wednesday.

“People are coming off the sidelines and buying stocks,” said Keith Wirtz, president and chief investment officer at Fifth Third Asset Management in Cincinnati.

There was also a sign of risk appetite in an increased exposure to riskier, higher yield bonds.

At the same time concerns have risen that yields on benchmarket government bonds are too low, providing little return and threatening a sell-off.

Investors in the Reuters polls did cut back overall exposure to bonds. But when it came to the money left for bonds they favoured U.S. and euro zone gover nment debt over most emerging markets, which have been very popular this year.

Exposure to emerging market debt was 8.1 percent of a bond portfolio for the month, compared with 9.6 percent a month earlier.

Investors also regained some composure about euro zone government bonds following the crisis over Ireland’s debt. They raised exposure within a bond portfolio to 31.5 percent from 31.2 percent, although these numbers remain well below the more than 42 percent seen at the beginning of 2010.

Regionally

U.S. fund managers built up their equity holdings in December to one of the highest points this year on signs of a swifter economic recovery.

The poll, which surveyed 13 U.S.-based fund management companies, showed firms boosting their equity allocations for the fourth month in a row to an average of 65.0 percent, two percentage points over November.

The Reuters poll also showed money managers scaling back their exposure to bonds for a fourth consecutive month, to 27.9 percent of their portfolios in December, compared with 30.2 percent last month.

Japanese fund managers held on to most of their global stock weighting in the month and raised their bond allocation to the highest level since September on the view that recent falls in bond prices were overdone.

The 13 respondents also lowered their cash position to the lowest level in more than a year.

Asset managers’ average weighting for global equities in the Japanese poll fell only 0.1 percentage point from the previous month to 47.1 percent. The weighting for bonds rose to 48.3 percent in December from 46.9 percent last month.

European fund managers lifted equity holdings to an 11-month high and also boosted bonds. The survey of 17 Europe-based asset management firms outside Britain released showed a typical mixed portfolio holding 50.1 percent in equities this month, compared with 49.6 percent in November.

It held 37.5 percent in bonds including government and corporate debt, compared with 37.3 percent last month. Cash holdings fell to 5.3 percent from 6.1 percent, hitting their lowest level since January. British fund managers increased their exposure to equities, particularly domestic UK stocks, and cut back on bonds.

The survey of 12 investment managers showed the average allocation to global equities climbed to 54.2 percent from 52.8 percent.

Bond holdings dropped to 22.0 percent from 22.5 percent. Exposure to UK stocks within equities jumped to 16.3 percent from 12.6 percent in November.

Emerging market funds on the way to record-setting year-EPFR

KUALA LUMPUR (Reuters) - Emerging markets are on their way to report record inflows in 2010 with equity fund inflows so far reaching $92.5 billion, $10.5 billion above last year's and bond funds attracting $52.5 billion, nearly seven times 2009 total, fund tracker EPFR Global said on Friday. The totals were up to the week ending 22 December. For the week's performance however, emerging market equity funds saw their 29-week inflow streak snapped due to profit-taking and uncertainty about inflation and fresh capital controls, said Boston-based EPFR, a unit of Informat Plc

Overall, EPFR said that during the final weeks of 2010, investor focus has shifted from bonds to equities. As such, equity funds globally took in a net $4.5 billion for the week ending 22 December while bond funds saw redemptions totalling $2.3 billion.

Emerging Market Equity Funds

EPFR said global emerging market equity funds have attracted two out of every three dollars committed to emerging market funds this year, but that it was the EMEA equity funds that would be carrying the greatest momentum into 2011 as they have seen inflows for 15 straight weeks with half of their year-to-date total coming in the fourth quarter alone. Latin American Equity funds have stumbled in recent weeks as political uncertainty and worries about Chinese demand cooled investor sentiment toward the region.

U.S., Global, Europe, Pacific and Japan Equity Funds

U.S. and Japan equity funds saw inflows with three of the other developed market fund groups seeing outflows. The latest inflows to the United States reduced year-to-date redemptions to $34.2 billion, which would be the smallest annual outflow since 2006. Japan equity funds extended their inflow streak to four consecutive weeks while Europe equity funds turned negative despite continued inflows into Germany equity funds.

Sector funds

Commodity and energy sector funds continued their strong run this year. Financial sector funds however struggle with concerns about higher funding costs in the coming months and the perception that Europe's sovereign debt problems could further damage balance sheets.

Bond Funds

U.S. bond funds and Western Europe bond funds saw outflows offsetting the gains in global bond funds and emerging markets bond funds. In the case of U.S. bond funds, redemptions from municipal bond funds accounted for more than half of the total outflows while in Western Europe, concerns about the ability of peripheral euro zone countries to avoid default continued to have an impact.