LONDON British fund managers cut their equity holdings and raised cash levels to four-month highs in March, a monthly Reuters poll showed on Friday, with some citing political risk including concerns over U.S. President Donald Trump's ability to deliver.
The survey of 14 UK-based wealth managers and chief investment officers was conducted from March 16 to March 28, a period in which Trump failed to get a healthcare bill passed, raising questions about whether he can push through tax cuts and boost spending.
The S&P 500 fell to a six-week low in the wake of Trump's failure, with so-called "Trumpflation" trades coming under heavy selling pressure.
"It might be that "Trumponomics" is beginning to lose its effect as the president has talked the talk but as yet has failed to walk the walk," wealth manager Investment Quorum's chief investment officer, Peter Lowman, said.
"Clearly, what we now need to see is an implementation programme on those economic stimuli such as tax cuts, deregulation and infrastructure spending."
Investors have grown increasingly nervous that the rally in global equity markets has run too far, too fast.
"Valuations across a number of asset classes and sub-asset classes are no longer cheap," Kleinwort Hambros chief investment officer, Mouhammed Choukeir, said. He noted a number of causes for concern, such as populist political pressures.
The poll showed that British funds cut overall equity allocations to 46 percent, the lowest level since December, and down from 47.4 percent in February.
Cash levels rose by 2.3 percentage points to 8.2 percent, the highest since November 2016, and bond allocations fell almost one percentage point on the month to 29.4 percent.
Royal London Asset Management's (RLAM's) Head of Multi-Asset, Trevor Greetham, said he remains overweight equities but had taken some profits.
"Stock markets tend to get more volatile in the summer months so we have been reducing our overweight positions somewhat to give us dry powder to buy inevitable dips in the market," Greetham said.
Within investors' equity portfolios, UK stock allocations fell by 2.3 percentage points to 22.1 percent, a 19-month low, as worries resurfaced over Brexit and a potential second Scottish referendum on independence.
Although managers said it was too difficult to assess the impact of Brexit, any potential break up of the United Kingdom was likely to create a wave of uncertainty and another large leg down in sterling, Greetham said.
"It is hard to see the positives from Scottish secession for UK asset markets," said a Henderson Global Investors multi-asset team analyst, Ryan Boothroyd. "The one exception might be gilts, where the move would likely delay any monetary tightening from the Bank of England."
Emerging market equities remained in favour, with allocations at 20.8 percent, up from 18.6 percent in February.
MSCI's emerging markets (EM) stocks index rose 3.5 percent in March and is up 12.5 percent year-to-date.
The U.S. Federal Reserve raised rates 25 basis points in March as expected, but Fed chair Janet Yellen's comments on a gradual rate hike trajectory were seen as dovish, prompting the dollar to fall sharply after the meeting.
"A more benign Fed creates a window of opportunity for EM to outperform, especially if the nominal growth surge continues," said RLAM's Greetham, who has moved emerging markets to a modest overweight position.
(Editing by Louise Ireland)