European funds' equity holdings highest since August

LONDON (Reuters) - Fund managers in continental Europe pulled capital out of cash in June and boosted stock holdings to their highest since August as investors embraced risk after a stellar equity rally, a Reuters survey showed.

The monthly survey of 14 investment houses in the region, released on Tuesday, showed equity holdings rose to 47.1 percent of their portfolios this month from 45.9 percent in May.

Bond holdings -- which include government bonds as well as corporate bonds -- rose to 39.3 percent in June from 38.8 percent last month.

Cash holdings fell for the fourth consecutive month to 6.4 percent, the lowest level this year, from 7.1 percent last month. In February, cash holdings hit 8.9 percent, the highest level since at least April 2004.

Six out of 14 managers had no cash in their portfolios.

Alternative investments, including commodities and hedge funds, fell to 4.7 percent from 5.4 percent.

The poll was taken between June 18-25, when the benchmark MSCI world equity index traded sideways after hitting a 7-1/2 month high earlier this month.

"Over the next month we expect the market to consolidate but we believe in the recovery and our main choices are tracking that strategy over the next 3 months," said Franck Nicolas, head of global allocation at Natixis Asset Management in Paris.

"So the main risk is to face a disappointment on the recovery that could invalidate our strategy in which many choices are correlated to the global recovery."

Equity allocation to North America rose to 36.8 percent in June from 35.3 percent while Europe outside the euro zone, Japan and Latin America also saw an increase. Allocation to euro zone stocks fell to 29.4 percent this month from 31.5 percent in May.

North America and the euro zone experienced a decline in bond allocation while the rest of Europe, Asia and Latin America saw inflows.

Within fixed income, fund managers liked corporate bonds the most, followed by bonds in emerging Asia and Latin America, maintaining the trend seen over the past few months.

U.S. Treasuries, whose 10-year yields hit an eight-month peak above 4 percent this month, were the least favoured.

The respondents were overweight on energy and telecom stocks, while they were underweight on industrials and financials.

Regionally, their equity portfolios were underweight on Japan while they were most overweight in emerging Asia.

(Editing by Mike Peacock)