Fund Mangers Underweight Bonds in January

January 30, 2004 ( - US fund managers were more underweight in bonds in January than in December, were slightly less overweight in equities than in the month before, and put more money into European equities.

The shifts in allocations come as bonds have lost their “cachet,” one of the 11 money managers polled by Reuters said.   In addition to the aforementioned moves, money managers also made smaller bets on alternative investments, including hedge funds, in January.

Among the money management firm represented in the poll were Citigroup Asset Management, Deutsche Asset Management, and UBS.

Money managers are also placing their chips on a rising US economy lifting other economic systems.    “We have had a huge run up in the equity markets and Europe has not had the same kind of party, but it will come to them soon,” Anthony Chan, chief economist at Banc One Investment Advisors told Reuters.

However, managers took pause after the US Federal Reserve’s announcement this week (See  Fed Keeps Interest Rate Machine in Idle ) to leave short-term interest rates at 1% without providing assurance will stay that low for a “considerable period.”  

“Those little words gave people a real fright,” Arnim Holzer, investment strategist with Deutsche Asset Management, told Reuters.   He explained that the most recent statement by the Fed might trigger repercussions with asset allocators for some time.

Looking ahead, money managers said they expect to be more underweight in the coming months now than they anticipated the last time they were polled, even though many were split on when the Fed may begin raising rates again. Some thought the Fed may move as soon as this summer, while others thought a rate increase will not come until early next year.

Managers said the recovery’s pace would make them begin to rotate stocks soon, especially in the US market.   Already, some changes are in evidence as fund managers increased their overweighting of industrial stocks.   They also will likely favor companies that can continue to grow and pay dividends, and some said they expect to shift away from the technology sector that helped drive the market’s rally last year.