European fund managers buy more stocks, cut cash

LONDON Wed Oct 31, 2012 12:47pm EDT

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LONDON (Reuters) - European fund managers raised their equity holdings to a 15-month high in October and trimmed cash levels as central bank stimulus encouraged a shift into riskier assets, a Reuters poll showed on Wednesday.

Most saw a respite in the euro zone debt crisis, with 15 out of 18 fund managers polled saying Greece would still be in the currency bloc at the end of next year, while 13 believed benchmark Spanish bond yields have already seen their peak in the current crisis.

Investors, however, stopped short of forecasting any long-term return on riskier assets, warning of an array of risks including Spanish and Greek aid talks, U.S. fiscal woes and global growth worries.

"The yields offered by core government bonds in Europe are really pushing investors to look elsewhere, with a high risk premium in favor of equities," said Sandra Crowl, a member of Carmignac Gestion's investment committee, which manages over $68 billion.

The European Central Bank's bond-buying plans drastically reduced the systemic risk, prompting Carmignac to increase its exposure to equities in its global and European funds but it was too early to say if it was a long-term move, Crowl said.

"There are still unanswered questions regarding when the Spanish government will request aid, and we have no final approval by the Troika on the release of the next Greek financing yet," she said. "Europe is still in a fluid situation."

The survey of 21 leading asset managers based in continental Europe showed allocation to global shares jumped to 46.8 percent on average from 44.9 percent last month and an annual low of under 41 percent in July. Bond holdings - often seen as being less risky - were trimmed slightly.

Holdings of safe-haven cash, although down to 7.2 percent of portfolios versus 8.2 percent last month and a 12.5 percent peak in May, remained high, in a sign that investors were still cautious.

Financials, which have long been the most underweight sector in European fund managers' portfolios, now tie with health as the most overweight, while investors continued to cut down on lower-yielding investment grade bonds.

"Investors bet on financials to ride the recent market respite," said Simone Da Dalt, fund analyst at Italy's Credem, which has more than 12 billion euros of assets under management. "But financials remain a risky and highly volatile bet, as banks and sovereigns will continue to deleverage and clean up their balance sheets."

European investors were split on the U.S. presidential election, with support for incumbent Barack Obama rather than Republican candidate Mitt Romney dropping to eight out of 15, from 10 out of 14 last month.

"It is difficult to decisively suggest that either candidate would be better for global asset markets," said Elke Speidel-Walz, chief investment strategist for Germany at Deutsche Bank Private Wealth Management.

"Using history as a guide suggests that (straight after the election) risky assets tend to favor an incumbent win ... in contrast, the year after election day, risky assets tend to favor the challenger winning ... as the market gets more comfortable and understands the strategy of the new President."

For global overview of asset polls click on

For Europe poll table click on (Additional reporting by Maria Pia Quaglia in Milan and Shadia Nasralla in London; Editing by Susan Fenton)

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