A new target for the US dollar? 1:1 with the Euro in 2001? What do you think?
Saturday July 28, 3:17 pm Eastern Time
Fund Managers Down on U.S., Eyeing Europe
By Svea Herbst-Bayliss
NEW YORK (Reuters) - U.S. fund managers trimmed holdings of U.S. assets and put more money into Europe as hopes for a speedy U.S. recovery gave way to worries the world's biggest economy may languish for months to come.
``We have been underweight the U.S. for some time. While this doesn't mean we think the U.S. is going to go down and everything else is going to go up, we have been in a global bear market and that means you have to be diversified,'' said Leila Heckman, managing director at Salomon Smith Barney.
Soft earnings have pummeled America's main stock indexes all year. This month's flurry of profit warnings prompted managers to adjust their portfolios again, even as they hoped the Federal Reserve's aggressive rate-cut campaign will eventually reignite the economy boost corporate bottom lines.
``For the balance of the year the opportunities are going to be in the United States,'' said Jeffrey Palma, a member of the asset allocation team at UBS Warburg.
``If we see signs of an economic turnaround, the equity markets will react accordingly and there could be a really nice rally here, at some point in the future,'' he added.
DOWNSHIFT
But in July there was a marked shift in sentiment from the previous month when managers poured funds into U.S. stocks and bonds.
A Reuters poll of 14 U.S. asset allocators that included industry heavyweights like UBS Warburg, Deutsche Asset Management and Zurich Scudder Investments, shows managers trimmed their allocations to U.S. equities to 47 percent in July from 48 percent in June. However, July's allocation tops a 45 percent allocation in May.
``We thought the U.S. would have reached a plateau by now after the Fed's interest rate cuts. But the markets are still performing dismally. Europe just offers better value because it has just been so undervalued for so long,'' said a manager at a Wall Street firm who asked to remain anonymous.
MALAISE MOVES
The malaise also infected fixed-income markets and the poll, which was conducted between July 18 and June 23 and released on Thursday, shows that managers cut their holdings of U.S. Treasuries. They reduced their allocation to 40 percent from 47 percent and put more money into German bonds in July.
Treasuries had been supported by hopes of more Fed rate cuts that would help pump up consumer spending. But some managers fled the market because they worried America's massive current account deficit may soon make the dollar vulnerable.
For months the dollar had marched higher against the euro and yen but this week the greenback extended a three-week fall, hurt by concerns the once booming U.S. economy may recover only slowly.
``One of the biggest themes driving us out of the United States and into Europe, and in our case even into Sweden, is that investors are turning negative on the U.S. dollar,'' said Jack McIntyre, fixed income manager at Brandywine Asset Management.
Managers also said European bonds may get more lift in the months ahead because the European Central Bank is still lagging the Fed in its rate cut cycle, suggesting to analysts there is still more room for the Frankfurt-based bankers to cut.
Even though Fed Chairman Alan Greenspan has left open the door for more interest rates cuts in the months ahead, the U.S. central bank is seen nearing the end of its rate cutting cycle which began in January. The ECB began easing rates about a year ago but has proceeded at a much slower pace.
''We want the ECB to be more aggressive in cutting rates and I think they will continue to move and that should help the euro,'' McIntire continued.
AT HOME
Meanwhile, managers who allocate only among U.S. fixed income securities also shifted out of Treasuries, reducing their holdings to 19 percent in July from 25 percent in June.
Mortgage-backed securities benefited most with managers raising their holdings to 29 percent in July from 20 percent in June. At the same time they trimmed their exposure to corporate bonds to 34 percent in July from 39 percent the month before. The shift occurred as managers felt mortgage-backed securities were much safer than many corporate bonds. |
