LONDON (Reuters) - European fund managers cut bond holdings to their lowest in nearly three years and boosted equities as expectations grew that a brighter economic outlook would eventually lead to higher interest rates, a Reuters survey showed on Wednesday.
The respondents cut cash while they added exposure to emerging market bonds and stocks, attracted by cheap valuations following a heavy sell-off in the first quarter <EUR/ASSET>.
The survey polled 19 asset managers in continental Europe from April 18 to 29, when world stocks bounced higher although lingering political tensions between Russia and the West over Ukraine discouraged investors from making aggressive bets.
“We maintain our overall bullish view for the whole year, as an improving economic environment should be supportive for risk assets, particularly developed market equities,” said Boris Willems, strategist at UBS Global Asset Management in Zurich.
“The coming earnings season is very important in order to see whether European companies are keeping up with the improving economic sentiment. As such, investors should prepare for higher volatility around that period.”
Overall bond holdings within the model portfolio fell to 36.7 percent, the lowest since May 2011, from 37.2 percent in the previous month.
Equity weighting rose to a two-month high of 47.3 percent, above the long-term average of around 46 percent, while cash levels fell to 9.5 percent from a 1-1/2 year high of 10.2 percent in March.
The respondents boosted North American equity holdings to 39.0 percent, the highest since July 2012, at the expense of euro zone and Japanese stocks.
Equity holdings rose to 6.7 percent in emerging Asia, while they held steady in emerging Europe, Africa and the Middle East.
Bond holdings in all emerging regions - Eastern and Central Europe, Asia, Latin America, the Middle East and Africa - rose, while those in the United States and Europe slipped. Japanese bond holdings rose to 4.5 percent, levels not seen since December 2012.
Investors remained overweight in corporate bonds, while they disliked U.S. and euro zone government bonds the most.
Editing by Alison Williams