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Q2 WM Outlook: how these readers are managing equity risks
by David Campbell on Apr 30, 2014 at 00:01
While managers where taking prudent steps to limit potential downside, the more targeted and nuanced nature of their risk aversion was obvious from their overall market exposure, with net allocations to equity actually rising slightly over the period.
On aggregate, across the five major geographical regions of the US, UK, Europe, Japan and developing, the number of managers reporting underweight equity exposure rose from 15.54% to 17.76%.
That remained toward the lower end of the scale over the full three-year span of the survey however, well short of a high of 47.94% in Q4 2011 and below the three-year average of 22.95%.
It was also accompanied by a parallel increase in the number of managers running overweight allocations, which rose from 48.14% to 51.44%. Those two polarised moves were funded by a squeeze on neutral equity allocations, which slid from 36.26% of managers to 31.44%.
Equity scepticism certainly did not prompt a dash back into fixed income either. This, for the first time in the history of the survey, recorded zero managers overweight across all four classifications, developed sovereigns and corporates and emerging market general and local currency.
‘Sit tight’ strategy
At the geographical level of equity selection, managers largely continued the ‘sit tight’ strategy which has characterised the last six months, only incrementally moving at the margins.
The two big substantive moves over the first quarter was for neutral weightings in emerging markets to flow into overweight, which near doubled from 22.2% of respondents to 42.9% over the period, and taking profits on Japanese allocations, with overweights falling from 63% to 42.9%.
European overweight allocations ticked back up from 63% to 74%, while investors also returned to US equity overweights, which rose from 44.4% to 50%. After a brief outbreak of nerves at the end of last year, no managers were willing to risk underweight allocations in either the UK or Europe.
Both Stockdale and Charles Stanley’s Birmingham boss Richard Venner listed when and how to take emerging market equity exposure as the single biggest decision investors would face over the next 12 months.
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