US fund managers boost cash holdings

UNITED States fund managers decreased their heavy exposure to stocks in November while increasing their cash allocations ahead of 2009's close on signs that economic recovery may be slow, a Reuters poll showed yesterday.

Based on 11 US-based fund management firms, surveyed November 12-27, firms raised cash holdings for a second consecutive month, to an average of 2.7 percent of their assets, compared with 1.9 percent in October and 1.6 percent in September.

November's figures include one more fund, but on a like-for-like basis, the group's direction is the same.

The increase in cash positions could accelerate as investors begin to unwind higher risk trades in the wake of the Dubai debt crisis, which began as final polling was taking place.

Fears of a possible debt default at a state-linked Dubai conglomerate could serve as the catalyst for an "overdue correction" in equities and risk assets, including corporate and high-yield junk bonds, said Mohamed El-Erian, chief executive of bond firm Pacific Investment Management Co.

Already, money managers have been taking down exposures in such markets because they had surged so fast.

"We're scaling back in stocks," said Keith Wirtz, chief investment officer at Fifth Third Asset Management, a Cincinnati, Ohio-based firm that oversees US$20 billion.

"When you see an asset class rise 60 percent from its bottom, you have to reassess. There isn't a lot of conviction that we will see another year of huge returns," Wirtz added.

The Standard & Poor's 500 index has rallied over 61 percent since its March low, gaining more than 5 percent in November alone.

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