U.S. funds favor equities on hopes of fiscal stimulus: Reuters poll

Trader works on the floor of the NYSE

By Krishna Eluri

(Reuters) – U.S. funds increased equity allocations to a 16-month high in November on expectations that fiscal stimulus from President-elect Donald Trump will boost stocks, a Reuters poll found.

U.S. stocks have risen sharply since Trump’s shock election victory earlier this month – Wall Street’s four main equity indexes hit record highs last week.

The survey of 13 fund managers, conducted Nov 16-29, showed equity allocations in a model global portfolio rose to 52.8 percent from 51.3 percent, the highest since July 2015.

That marked a shift as funds had kept portfolios largely steady over the past few months.

So far, allocations to bonds, cash and property are little changed. The only notable adjustment was a suggested cut in alternative investments, which were in favor over the past year or so.

“We continue to favor equities over bonds, particularly in the wake of the surprise election results. We anticipate an increase in fiscal stimulus in the form of tax cuts, infrastructure spending and reduced regulation,” said Alan Gayle, director of asset allocation at RidgeWorth Investments.

“We had an allocation to gold in the alternative space and while that worked very well for us since late January, it was faltering. We sharply trimmed our exposure to gold and moved that into equities.”

Although there has been a sharp sell-off in major government bond markets, bond allocations were up slightly at 35.8 percent of the portfolio this month compared to 35.6 percent in October.

Yields on U.S. benchmark 10-year notes <US10YT=RR> hit 2.417 percent last week, compared to about 1.80 percent before Trump’s election on Nov. 8.

The dollar index <.DXY> has also surged to a more than 13-year peak, in part on greater certainty about a Federal Reserve interest rate hike in December and more to come next year.

“We continue to believe the best risk/reward opportunities remain in the U.S., despite the recent increases in bond yields,” RidgeWorth’s Gayle added.

(Polling by Sarmista Sen and Vartika Sahu; Editing by Andrew Heavens)