British Fund Managers Opt for Cash

Flight to safety sees stock holdings fall as crisis continues

Worries about stock prices and eurozone debt have spurred a flight to safety in Britain. Worries about stock prices and eurozone debt have spurred a flight to safety in Britain.

Waning faith that the eurozone can extricate itself from its debt crisis has led British fund managers to hold their highest concentration of cash in at least two years.

As stocks no longer seem safe enough amid a steadily escalating crisis atmosphere, investment managers have dropped their stock holdings by more than a percentage point in December, with their cash holdings rising by the same amount. Those cash holdings stand at an average of 10.4%.

Reuters reported that managers are hoping for a better year in 2012, but apparently are not counting on it after a year beset with everything from natural disasters to political instability and continued financial woes. Chris Paine, associate director for asset allocation at Henderson Global Investors, was quoted saying, "One would hope there would not be as many 'acts of God' in 2012, but the potential for market upsets and systemic crises remains high."

One of the top concerns of managers surveyed in the Reuters poll is, of course, the continuing debt crisis in the eurozone, with few having much confidence that it will be resolved or that the euro itself can survive as it is. The latest deal to emerge from a European Union summit meeting did little to restore that confidence.

Also of major concern is the global recession and its threat to economic engines like China and India, which are feeling the effects of consumer slowdowns. Paul Amer, investment manager at Insight Investment, was quoted saying, "Modest global growth profiles when compared with historical recoveries remain one of many concerns."

Still, there remains among some investors an appetite for strong companies and longer-term investments. Alec Letchfield, chief investment officer, wealth at HSBC Asset Management, said in the report, "Despite the more lackluster prospects for economic growth next year, we are positive on the longer-term prospects for equities, reflecting low valuations and the relatively strong financial positions of many companies."

He added, "However, further volatility is likely and downside risks remain in the event of another escalation of the eurozone crisis."

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