U.S. fund managers favored equities in March, a Reuters poll showed on Friday, but with stock indexes trading near record highs they warned that most asset prices now look expensive.
The survey of 13 fund managers conducted between March 20 and March 30 showed global equity allocations accounted for 56.5 percent of the model portfolio. Bond allocations came to 33.8 percent.
The latest recommendations are a big move up in stocks and a cutback in bond allocations compared with the previous month's poll. But that change is principally because a few new contributors have been added to the panel and others removed.
However, average equity allocations remain relatively modest given where indexes are trading. It has been about four years since they were last above 60 percent for equities and about 30 percent bonds - a more common split in the past.
For several years, stock and bond prices have broadly risen in tandem - against conventional wisdom - driven by large amounts of cash being poured into bond-buying by central banks, leaving most asset classes looking stretched.
"From our perspective, there aren't too many attractively valued assets right now. Equities are modestly overvalued (but) we wouldn't say significantly overvalued," BMO Global Asset Management senior investment strategist, Jon Adams, said.
"Equities have been a strong position for us and delivered a great performance for the past year. But we've become more concerned that we have come too far, too fast over the last year."
That assessment is in line with a separate Reuters poll of ever-bullish equity strategists and brokers. They expect stock markets to keep rising but also say developed market share prices are looking expensive, and those major indexes are due for a correction of 10 percent or more this year. [EPOLL/WRAP]
Global stocks have rallied this year so far with U.S. indexes hitting almost daily record highs recently. The benchmark Standard and Poor's 500 market capitalization hurdled $20 trillion for the first time last month.
The general rush into stock markets has also coincided in part with economic optimism on the view that world economy is in a synchronous upturn.
But bond yields have not risen significantly higher even as the U.S. Federal Reserve ramped up the glacial pace of its rate rises this month and is expected to deliver at least two more this year. [FED/R]
That is in step with the outlook for bond markets, where fixed-income strategists as a whole in a separate Reuters poll were not very concerned about global inflation. [US/INT]
More recently, growing doubts about the Trump administration's ability to pass sweeping tax cuts have also pushed Treasury bond prices higher on the view that growth and inflation will remain subdued.
U.S. fund managers are also sounding cautious on European assets, with elections this year in France and Germany. Strong far-right support may mean an upset for establishment politics.
"We are concerned about Europe. Our key tactical view right now is being overweight U.S. equities relative to international developed equities," BMO's Adams said. "More specifically, we have a positive view on the U.S. versus Europe."
(Additional reporting and polling by Rahul Karunakar and Sujith Pai in Bengaluru; Editing by Ross Finley and Louise Ireland)