LONDON (Reuters) - British investors boosted euro zone stock and bond holdings to their highest in two years and sold U.S. assets in September as the U.S. Federal Reserve shocked markets by keeping its massive monetary stimulus intact.
A monthly survey of 14 British-based investment managers found an average 14.7 percent of global equity portfolios was allocated to the euro zone this month, and some 18.1 percent of global bond portfolios, levels not seen since 2011.
Bond and equity allocations to the United States and Canada meanwhile fell to their lowest in more than 2-1/2 years.
The U.S. central bank announced on September 18 that it would keep buying $85 billion (52 billion pounds) of bonds a month, surprising markets which had expected the Fed to begin scaling back the programme.
Fed Chairman Ben Bernanke had signalled in May that stimulus would be gradually withdrawn as the U.S. economy recovers, but recent weak economic data led policymakers to delay the start of the planned “tapering”.
“Bernanke’s U-turn on tapering was negative for the U.S. dollar, implying a ‘lower for longer’ time-frame for U.S. interest rates,” said Rob Pemberton, an investment director at HFM Columbus. “This had the effect of making the euro and euro zone assets more attractive.”
Improving economic data in Europe also played its part in the jump in allocations, said Mehvish Ayub, an investment manager at Baring Asset Management.
“The (European) recession appears over even if future growth prospects are not as rosy as in other parts of the world,” said Andrew Milligan, head of global strategy at Standard Life.
The poll was conducted between September 19 and 26, after the Fed announcement but before weekend political developments in Washington and Rome heightened concerns about a U.S. government shutdown and the collapse of Italy’s coalition government.
“Tapering has been delayed but not cancelled,” said Matthew Farrell, an investment specialist at London & Capital, adding the Fed will want evidence the U.S. housing market can withstand higher mortgage rates before it begins turning off the taps.
“While the Fed’s communication strategy in recent months will be questioned by the market, we continue to believe that the Fed’s exit will be very gradual,” Farrell said.
The September survey found the average allocation to equities in global balanced portfolios fell to 55.2 percent from 55.8 percent in August.
Bond holdings rose to 24.1 percent from 23 percent in August, as fund managers bought assets that would have been likely to fall in value had the Fed started winding down the stimulus programme.
Cash holdings fell to 7.8 percent from 8.7 percent in August while investment in real estate rose to 2.7 percent from 2.6 percent, the highest level this year. Alternatives, which include hedge funds and commodities, were up to 10.2 percent from 10 percent.
Editing by Catherine Evans