U.S. firms cut equity holdings to six-month low in November: Reuters poll

NEW YORK Mon Dec 3, 2012 9:16am EST

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NEW YORK (Reuters) - U.S. investment firms took a more defensive stance in November, cutting their average equity holdings to a six-month low even as European firms raised them, a Reuters poll showed on Monday.

That cutback, based on concerns about the possible economic impact of the ‘fiscal cliff' - a package of U.S. tax increases and spending cuts set to take effect in January - helped contribute to a post-election swoon in the stock market.

The Standard and Poor's 500 index fell in the days after Barack Obama was re-elected president on November 6, losing more than 5 percent before beginning a rebound on November 15 that left it barely changed on the month.

The Reuters survey of 11 investment firms found that the average allocation to equities in a balanced global portfolio fell to 59.7 percent in November.

That was a 3.7 percentage point drop from October and 7.1 percentage points below a 12-month high reached in April. Overall equity allocations fell to their lowest since May.

Investors also cited concerns about the global economy and corporate earnings as reasons behind the cutback.

"We just don't think earnings growth globally is going to be that strong," said Steven Bleiberg, head of asset allocation at Legg Mason. He said profit margins in the U.S. are unsustainably high and are likely to revert to their historical average.

Bond allocations rose to 31.5 percent of assets, a 1.5 percentage point increase from October.

Cash allocations rose 1.1 percentage points to 4.1 percent, while allocations to alternative investments like hedge funds rose 1.1 percentage points to 3.5 percent.

U.S. and Canadian government bonds were the biggest beneficiaries of the move toward fixed-income, despite rock-bottom yields. Euro zone sovereign debt holdings slipped, as did those of Japanese government bonds.

Concerns that the yen would depreciate was one likely reason for the cutback in JGBs, said Brian Jacobsen, chief portfolio strategist at Wells Capital Management.

"The yields weren't all that compelling to begin with, but when you tack on there the possibility of a currency depreciation, that makes it even less attractive," he said.

Investment-grade corporate bonds made up a larger percentage of the average bond portfolio than government bonds for the first time since August 2010, rising to 43.6 percent, a 7.7 percentage point jump from October.

It was also the highest such allocation to investment-grade corporate bonds since at least early 2010. Allocation to government bonds slipped to 33.9 percent from 40.3 percent.

Investors cited historically low yields for U.S. Treasuries as one reason for the move toward corporate debt.

"Corporates are significantly more attractive than Treasuries, which we think is the most over-valued asset class," said Christopher Brown, chief investment officer at PAX World Mutual Funds.

But allocations to high-yield, or "junk", bonds fell to 11.4 percent from 11.7 percent the month before.

(Reporting by Snehasish Das, Somya Gupta, David Randall, Sam Forgione; Editing by Susan Fenton)

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