LONDON (Reuters) - British fund managers raised their U.S. stock holdings in June to their highest since March but cut their UK equity holdings after June’s general election, which resulted in a hung parliament and increased uncertainty over Brexit.
In a Reuters poll of 14 UK-based wealth managers and chief investment officers conducted between June 15 and 28, their U.S. stocks allocation grew by 1.7 percentage points to 31.8 percent of their global equity portfolios.
This came against the backdrop of a 2.8 percentage point cut in the share of equities within investors’ global balanced portfolios, to 46.3 percent, its lowest since March. By contrast, bond holdings grew 2.4 percentage points to 30.5 percent, the highest since December 2016.
U.S. equity markets had a volatile time in June, with tech stocks such as Google’s parent Alphabet (GOOGL.O), Apple (AAPL.O), Facebook (FB.O) and Microsoft (MSFT.O) selling off hard early in the month. This raised fears of another dotcom-style crash.
The tech-heavy Nasdaq .IXIC is set to end June down 0.9 percent, bringing a seven-month winning streak to a close, but is still up 14 percent so far this year.
Three-quarters of poll participants who answered a special question on tech stocks said they were not overvalued.
“The technology sector still has positive momentum in earnings growth relative to other sectors,” said Trevor Greetham, head of multi-asset at Royal London Asset Management (RLAM). “As long as rate rises don’t create a significant economic downturn, the sector should continue to trade positively.”
Ryan Boothroyd, a fund manager with the multi-asset team at Janus Henderson Investors, acknowledged that investor sentiment towards the sector was elevated, but added: “We are a long way from the dotcom bubble.”
He argued that technology companies had established decent fundamentals, and many of the larger stocks had net cash on their balance sheets.
Investors were also optimistic about the outlook for U.S. growth. More than 80 percent of poll participants who answered a question on Federal Reserve tightening said the U.S. economy was strong enough to take another rate rise in 2017, despite a run of recent soft data. In June the Fed raised rates for the second time this year.
“We are starting to see some signs that the U.S. economy is softening but the underlying trend, especially in the labour market, remains positive,” said RLAM’s Greetham.
David Vickers, senior portfolio manager at Russell Investments, struck a more cautious note, pointing out that since the first hike in March, U.S. economic data had largely disappointed.
“With inflation suppressed by the current bear market in oil, the Fed would be well served to see if this economic lull is transitory, otherwise they could risk prolonging/exacerbating it,” he said.
Investors cut their UK stock holdings by 1.5 percentage points to 22.2 percent, the lowest since March, after the snap general election on June 8 delivered a hung parliament.
This confounded expectations that the Conservative party would win a larger majority and left Britain with a minority government on the eve of Brexit talks.
Three-quarters of those who answered a question on the election outcome thought a softer Brexit was now more likely. Prime Minister Theresa May has promised to listen more closely to business concerns about Britain leaving the European Union.
“The weakened Conservative parliamentary position was a massive game-changer,” said Mouhammed Choukeir, chief investment officer at Kleinwort Hambros. But he warned that the mounting uncertainty around the Brexit negotiations remained a headwind.
“Brexit will only get softer from here,” agreed Russell’s Vickers. “It is clear that there is no political support for a hardline Brexit stance. Theresa May’s uncompromising stance played a big part in the government’s downfall.”
Editing by Gareth Jones