Por Tushar Goenka
BENGALURU, Mar 31 (Reuters) – Lower economic growth, not higher inflation, is the main risk for investment portfolios, according to most fund managers polled by Reuters, who cut their bond holdings to its lowest level in two years, as yields continue to rise.
The Nasdaq Index, a basket of tech stocks that has risen thanks to an abundance of cash on hand, is bracing for its first monthly decline since November after yields on U.S. Treasuries rose to a 14-month high.
Cyclical stocks, whose performance moves in tandem with the broader economy, supported the S&P 500 and the Dow Jones to hit all-time closing highs last week. That reflected growing optimism that the economic recovery would be fueled by coronavirus vaccine launches and political support.
In the March 10-31 survey, investment managers and wealth managers in Japan, Europe, and the United States recommended increasing equity exposure to 49.8% of their model global portfolio, the highest since early 2018.
That average has grown more than eight percentage points from a decade-long low in October.
“The reopening of the world economy, and the associated rebound in growth, is driven by a successful deployment of the COVID-19 vaccine. If the virus mutates to a state where the vaccine is no longer effective, an additional period of prolonged lockdowns can shake up global markets, “said Craig Hoyda, senior analyst at Aberdeen Standard Investments.
“We see the greatest opportunity in cyclically exposed equity markets. Additionally, the different pace at which each region emerges from lockdowns, as well as the vulnerabilities they face, provide (margin) for relative value trading.”
Almost 60% of the 24 respondents who answered an additional question said that slower economic growth was the main risk to their current positioning. Five said higher inflation and two said higher returns. Others mentioned negative interest rates or a flawed vaccination program.
On Tuesday, the benchmark yield on 10-year US Treasuries, which rose more than 80 basis points this year, climbed to a 14-month high of 1.776%, well above its all-time low of 0.318%. in March 2020 and highlighting the decrease in risk aversion.
Reflecting those views, the latest polls saw the share of bond holding suggestions, a key indicator of caution, reduced to represent 39.7% of the global portfolio, down from 39.8% last month and the lowest since February 2019.
March and February were the only months in about two years where bonds have represented less than 40% of the model global portfolio. In October, it was a record 45.5%.
“Bond watchers have become very nervous that the Federal Reserve Bank of the United States may be making a monetary policy error by not considering raising rates in the not too distant future,” said Peter Lowman, director of Investment Quorum investments.
(Team report by Polling, Tushar Goenka in Bengaluru and Fumika Inoue in Tokyo; edited in Spanish by Gabriela Donoso)