British investors put the fears that gripped markets in the latter months of last year firmly behind them in February and allocated more money to stocks at the expense of safe havens such as cash and bonds, according to a Reuters poll. The average exposure to equities in balanced portfolios according to a monthly survey of 14 British investment managers jumped more than two percentage points to 52.1 percent, the highest since July last year.
The increase came at the expense of investment in bonds, down to 23.8 percent from 25.2 percent while money kept in cash for safety dropped to 6.6 percent from 8.9 percent. Investment in property and alternative assets, such as commodities, hedge funds and private equity, were also higher than a month earlier at 2.1 percent and 15.4 percent respectively.
"Investors seeking value this year really must be in equities," said Lee Robertson, Chief Executive of Investment Quorum. "Investors have a stark choice: to remain fearful of markets and see a marked depletion of capital due to inflation, or brave the markets for longer term capital growth," he said.
The turnaround in allocations comes just two months after cash allocations reached a multi-year high on worries about the potentially catastrophic fallout from the euro zone debt crisis. The European Central Bank's increased efforts to provide liquidity to banks in late 2011 through its Long Term Refinancing Operation (LTRO) has reduced the risk of a serious banking crisis, however, and risk appetite started to return. Banks have taken more than a trillion euros of ultra-cheap three-year funds from the ECB at operations in December and on Wednesday.
But investors remain mindful of the risk that volatility and fear might return. "There are three major risks to the economic outlook: rising oil prices, a China "hard" landing and another shock to confidence emanating from Europe. Each or a combination could derail output growth," said Chris Paine, director of asset allocation at Henderson Global Investors.
Investors also warn life support for the European banking system through the LTRO is not a permanent fix for the crisis. "The Eurozone sovereign debt crisis, although improving, has not gone away. The LTRO has stopped the bleeding, but it has not healed the wound," said Neil Michael, executive director in investment strategies at London & Capital.