UK investors head for home market safety - Reuters poll

LONDON Fri Jul 29, 2011 11:36am BST

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LONDON (Reuters) - British fund managers are heading to domestic stocks and bonds as mounting worries about sovereign debt in the euro zone and United States add to the UK's allure as a safe haven in a volatile world, a Reuters poll shows.

A monthly survey of 14 investment managers found the average allocation in global equity portfolios to the UK increased 3 percentage points to 15.6 percent in July from a month earlier.

Allocations to the euro zone and the United States, where fears of possible defaults on creaking sovereign debt burdens have rattled markets, both fell during the month.

The average exposure to U.S. equities slid to 41.3 percent, from 42.1 percent, while euro zone allocations were at 14.9 percent, from 16.3 percent a month earlier.

Performance figures from Lipper earlier this month showed macro-economic shocks -- from the euro zone debt crisis to May's commodities sell-off -- had helped lift the performance of domestically focused funds during the first half of 2011.

An annual survey published this week by British funds lobby group the IMA shows equity allocations to the UK have been declining steadily in recent years, from around 59 percent in 2006 to 42.6 percent in 2010.

Several of the managers and chief investment officers surveyed by Reuters said a recent deal to make private investors shoulder some of the burden of bailing out Greece to stop contagion is unlikely to resolve the crisis conclusively.

"Crises, packages and tactical rallies will follow -- ultimately radical, comprehensive, broad scale solutions will be needed in large size," said Andrew Milligan, head of global strategy at Standard Life Investments (SL.L).

"Remain moderately light in the euro and certain peripheral bonds, buy export orientated equities, but in particular prepare portfolios for considerable future volatility."

Shares in British companies, which aggressively cut costs in readiness for the economic downturn, have emerged as an unlikely safe haven in recent weeks on account of strong balance sheets and resilient earnings.

But UK fixed income is also popular, the poll shows, with allocations to Britain in global bond portfolios rising to 37.1 percent from 34.4 percent a month earlier.

The poll echoes sentiment on currency markets in which Britain's growing appeal as an island of relative fiscal health in spite of a still sluggish economy has driven sterling to six week highs against the dollar.

Meanwhile, allocations in balanced portfolios by asset class remained broadly unchanged from a month earlier with average exposure to equities at 52.6 percent and bonds at 23.5 percent. Cash holdings were at 3.7 percent with 2.6 percent in property and 17.6 percent in alternative investments.

"This is not a time for the faint of heart, but bravery will be rewarded," said Lee Robertson, Chief Executive of Investment Quorum, a wealth manager based in London.

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