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Lower economic growth, not higher inflation, is the primary risk to investment portfolios, according to a majority of fund managers in Reuters polls, who cut bond holdings to their lowest in two years as yields continued to rise, spooking investors.

The tech-heavy Nasdaq index, a basket of stocks that has ridden higher on cheap cash, was poised for its first monthly decline since November this month after U.S. Treasury yields climbed to a 14-month high.

Cyclical stocks - whose performance moves in tandem with the broader economy - supported the S&P 500 and the Dow to clinch record closing highs last week. That reflected rising optimism the economic recovery would be propelled by coronavirus vaccine rollouts and policy support.

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In the March 10-31 poll, chief investment officers and wealth managers in Japan, Europe and the United States recommended increasing equity exposure to 49.8% of their model global portfolio - the highest since early 2018.

That average has grown over eight percentage points from October’s decade-low.

“The reopening of the global economy, and associated pick up in growth, is driven by a successful rollout of the COVID-19 vaccination. If the virus mutates to a state where the vaccine is no longer effective, then a further period of prolonged lockdowns may roil global markets,” said Craig Hoyda, senior quantitative analyst at Aberdeen Standard Investments.

“We see most opportunity in the cyclically exposed value equity markets. Furthermore, the differing pace in which each region emerges from lockdowns, as well as the vulnerabilities faced by them, provides (scope) for relative value trades.”

Nearly 60% of 24 respondents who answered an additional question said lower economic growth was the primary risk to their current positioning. Five said higher inflation and two said higher yields. Others said negative interest rates or a flawed vaccination program.

On Tuesday, the benchmark U.S. 10-year Treasury yield , up over 80 basis points this year, climbed to a 14-month high of 1.776%, well above its historic low of 0.318% in March 2020 and underlining the diminishing risk aversion.

Mirroring those views, the latest polls saw the share of bond holding suggestions - a key gauge of caution - reduced to account for 39.7% of the balanced global portfolio, down from last month’s 39.8% and the lowest since February 2019.

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March and February were the only months, in around two years, where bonds have accounted for less than 40% of the model global portfolio. In October, it was a record-high 45.5%.

“The bond vigilantes have become very nervous that the U.S. Federal Reserve Bank might now be making a monetary policy error by not considering raising rates in the not-too-distant future,” said Peter Lowman, chief investment officer at Investment Quorum.

“The Ides of March has created a roller coaster ride for global investors as concerns over the possible short-term spike in inflation created the largest rise in 10-year government bonds since the taper tantrum in 2013. Having some inflation protection would seem sensible at this current juncture.”

In a separate Reuters poll, analysts said the global bond rout was not over and another sell-off was likely over the coming three months. They predicted the U.S. 10-year Treasury yield would climb to 1.90% in a year.

Earlier this month, the Bank of Japan - which has held its key interest rate at -0.1% since the beginning 2016 - widened the implicit band to tolerate more rises and falls in the 10-year bond yield to around 0%, leading a flight out of bonds.

Therefore, Japanese fund managers swapped bonds for riskier assets to earn higher returns, lowering the share of bond holdings in their global balanced portfolio to 57.5%, the lowest since May 2020.

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When respondents were asked if they advised buying environmental, social and corporate governance (ESG) based investments, nearly 85% of 25 participants said they did.

Respondents also said those investments, on average, accounted for nearly 60% of their model portfolios. Forecasts ranged between 3% and 100%.

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