n">(Reuters) - U.S. money managers cut their equity holdings to the lowest in three months in September despite a strong rally in U.S. stock markets, increasing their allocation in bonds to the highest in four, a Reuters poll found on Thursday.
The poll of 15 U.S. fund managers taken Sept 14-26, showed a drop in the average equity allocation in a global balanced portfolio to 62.6 percent, the lowest since June, from 64.6 percent in August.
That came despite a nearly 2 percent rally in the benchmark S&P 500 so far this month and a 16 percent rally since a recent trough in June. The MSCI world stock index is also up about 2 percent this month.
Investors in the asset allocation poll, as well as strategists the Reuters global stock market poll published on Wednesday, said that the "fiscal cliff" of tax increases and spending cuts at the start of the new year have made many investors cautious.
"We feel that (the S&P 500) is more likely to see modest moves upward in the near term, potentially declining as concerns surrounding the fiscal cliff come to bear near the end of the year," said Douglas Gordon, senior investment strategist at Russell Investments.
At the same time, the average bond allocation rose to 30.1 percent in September from 27.6 percent last month.
A chunk of that came from a rise in allocations to euro zone bonds, which followed the European Central Bank's announcement on September 6 that it intended to buy peripheral euro zone bonds in an attempt to bring down yields.
"We feel that this partially mitigates downside risks but certainly doesn't remove them. Questions remain surrounding longer term structural issues in Europe," said Gordon.
But it has become clear over recent days that Spain is very close to asking for a full international bailout. Allocations to euro zone equities by U.S. fund managers slipped slightly in September.
On the whole, government bonds attracted an average 39.7 percent of the firms' model allocation, up from 38.6 percent previous month. Firms allocated 10.9 percent of their global bond investments to the euro zone, up from 9.5 percent.
Stock markets broadly have rallied over the past few months in anticipation of a third round of bond purchases from the U.S. Federal Reserve.
On September 13, the Fed announced $40 billion purchases per month of agency mortgage-backed securities, pledging it would continuing buying bonds until there was a meaningful improvement in the moribund U.S. job market.
But allocations to U.S. and Canadian stocks fell in the latest Reuters asset allocation poll, together attracting 65.1 percent of the firms' overall stock exposure, down from 66 percent in August, and the lowest since June.
Apart from the threat of the "fiscal cliff" in the U.S., slowing growth in China, Latin America, and Europe have weighed on market sentiment, said David Goerz, chief investment officer of HighMark Capital Management.
Investors also allocated more to alternate forms of credit ranging from credit default swaps to agency mortgage backed-securities, which the Fed targeted in massive quantities in its latest stimulus plan.
Such credit accounted for 16.2 percent of bond investments, up from 15.3 percent last month.
(Reporting by Sam Forgione, Rahul Karunakar, Ruby Cherian, Deepti Govind; Editing by John Stonestreet)
