U.S. fund managers increased their exposure to alternatives in February as inflationary pressures intensified and slightly lowered their allocations in domestic equities, a Reuters poll showed on Monday.
Based on 14 U.S.-based fund management firms that were surveyed between February 14 and 28 and had responded to the January poll, firms held 3.3 percent of their assets in alternatives such as commodities and hedge funds this month, up from 2.5 percent in January.
While this category still accounts for a tiny portion of these funds' assets, the increase was noticeable and reflects an overall fundamental shift in sentiment. Up until late last year, investors were worried about deflation but in recent months inflationary pressures have been the clear and present danger for investors.
Staples like wheat, rice and corn have reached record prices and last week oil surged to 2-1/2-year highs near $120 a barrel as the revolt in Libya choked exports. Gold prices jumped above $1,400 an ounce recently, as violence flared in north Africa and the Middle East.
The tidal wave of money stemming from loose global monetary policies has helped reflate economies and stock markets around the world. But it also has translated into soaring food and energy prices.
Wells Capital Management's senior economist Gary Schlossberg said his firm holds commodity-linked securities because they will produce attractive secular returns, benefiting both from a favorable demand and supply balance and from ample market liquidity that lifts inflation expectations, if not inflation itself.
The Reuters poll of money managers showed them lowering allocations elsewhere. In February, firms held 64.0 percent of their assets in equities, down a touch from 64.1 percent in January. But given the turmoil in Egypt and Libya, U.S. equity markets have been resilient with the benchmark Standard & Poor's 500 doubling from its 2009 low in February.
For their part, fixed-income securities also suffered net outflows in February for a third month in a row, owing to inflation concerns. The 14 money-management firms scaled down their bond allocations in February to 28.0 percent of their assets compared with 28.6 percent the previous month.
No one expects the Federal Reserve to raise rates from their current zero to 0.25 percent range anytime soon given the bigger focus on generating jobs. However, its quantitative easing programs have caused inflation expectations to rise.
In fact, Treasury Inflation Protected Securities maturing in the 0-5 years range were up 1.198 percent for the six months ended in early February -- before the safe bid to Treasuries took place amid the violence in Egypt and Libya.
In comparison, those Treasuries maturing in 10 or more years were down 2.688 percent for the same period, according to Barclays Capital.
The 14 U.S.-based fund management firms also decreased their cash allocations, holding 2.74 percent of their assets there this month, down from 2.81 percent in January. For global overview of asset polls, click on
(Polling by Bangalore Polling Unit; editing by Diane Craft and Stephen Nisbet)