European funds cut their allocations to US stocks and bonds in December as the Fed kicked off its rate rise cycle, but holdings of debt in global portfolios rose to 2-1/2-year highs, a Reuters poll showed.
The poll of 16 European asset managers was conducted between December 15-21, coinciding with the US Federal Reserve's December 16 interest rate rise, its first in nine years.
While the Fed move showed confidence in the US economy, scepticism prevails about a sustained global recovery. Weaker growth in China is dragging down other emerging markets, while in the United States too, dollar strength has brought industrial growth to a near-standstill.
The share of equities in global balanced portfolios in Europe dipped 2.5 percentage points from November to 45.2 percent, the poll showed. This was the lowest allocation since September, which in turn was a nine-month low.
"(US) rate hikes are occurring way too late in a cycle that is already ebbing," said Raphael Gallardo, asset allocation strategist at Natixis.
"If the Fed hikes more than twice in the first half of 2016, it might trigger a downturn in the second half, with potential financial tensions in equity and credit markets."
The Fed is expected to raise rates again in March 2016 but move very slowly after that, Reuters polls show.
Holdings of US equities dipped almost one percentage point to 36.5 percent while US debt allocations were steady after being cut gradually since September.
"We see the possibility of a cyclical uptrend in 2016, against an overall economic backdrop that remains fragile and that points toward structurally lower growth," said Giordano Lombardo, chief executive and group chief investment officer at Pioneer.
"We are moderately positive on risky assets, especially equities, but risks of "tail risks" events are on the rise," he added.
More broadly, bonds benefited, with global allocations rising to 39 percent, the highest since July 2013 and up more than two percentage points from November. Bond holdings were 35.5 percent at the start of 2015.
Some of the disenchantment can be attributed to the European Central Bank, which extended its asset purchase programme early in December but did less than investors had expected.
Euro zone bond holdings dipped to 50.3 percent, the lowest level since January 2015.
UK stocks and bonds were in favour, rising two and one percentage points respectively.
Despite tentative signs of improvement in battered emerging economies, investors remained wary, noting stagnant world trade, high debt levels and weak commodity prices. Crude prices have hit 11-year lows this week. For Joost van Leenders, chief economist for multi-asset solutions at BNP Paribas Investment Partners, it still boils down to what the Fed will do.
"Risks are still in high leverage in China and some other emerging markets, and also in uncertainty around the US tightening cycle and its impact on the dollar," he said.