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Funds recommended equity holdings be trimmed to the lowest in more than four years in August, despite record-breaking gains by world stocks, as the pandemic drags on and new data suggest the nascent economic rebound is stalling, Reuters polls found.

The August 17-27 poll of 35 fund managers and chief investment officers in the United States, Europe, Britain and Japan was largely taken before U.S. Federal Reserve chair Jerome Powell announced a new policy framework promoting higher inflation to spur economic recovery and job creation on Thursday.

The Fed’s new strategy sent U.S. Treasury yields higher, which gave a lift to interest rate-sensitive financials and in turn boosted the S&P 500 Index to a new record high and pushed the MSCI’s all-country world index to surge past its pre-COVID-19 high reached in February.

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While world stocks have risen as much as nearly 60 per cent since March troughs, the poll showed average recommended exposure for equities in August in the model global portfolio was the lowest since July, 2016, down to 43.1 per cent from 43.9 per cent the previous month.

Overall equity exposure is down 6.6 percentage points from the beginning of the year, down from 49.7 per cent in January.

“The recent upsurge in stock markets around the world is all noise for us as a health solution is still out of reach. We are more concerned about the recovery story. The risks to the global economy remain, with tens of millions of people still out of work because of the pandemic,” said a global chief investment officer at a large U.S. fund management company.

“The stock market in the near term may be juiced further on the Fed news. But we doubt whether the Fed would be able to lift inflation despite the new target as it hasn’t been able to do so since 2012. Let’s not forget, the U.S. economy is still in a deep crisis, and the risks are more to the downside as Americans prepare to vote in a contentious Nov. 3 election.”

Economic recovery was foremost in Mr. Powell’s remarks made as part of the Kansas City Fed’s virtual Jackson Hole symposium, in which he outlined an aggressive new strategy that aims to boost employment and allow inflation to run a bit faster for longer than in the past.

That came as new data suggest the labour market recovery is stalling, while the U.S. economy suffered its sharpest contraction in the second quarter since the government started keeping records in 1947.

The poll suggested keeping bond allocations – a key gauge of caution – for a model global portfolio at 44.3 per cent, the highest since the survey series started in early 2010, for the third month in a row.

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That defensive outlook of long-term investors does not align with the approach of over 200 equity strategists in a separate Reuters poll this week, who expect stocks to keep rising. But they did say a sombre economic outlook was likely to push stock markets to close the year below their prepandemic highs.

In the latest poll, fund managers with a view on when the current bull run in stocks will end were split. About 43 per cent of respondents, or nine of 21, said it already had. Seven, or 33 per cent, said it has more than two years to run.

“This recent bull market rally has been narrow in respect to sector rotation with the economically-sensitive stocks having lagged whilst uncertainties over the second wave of COVID-19 haunts part of the market,” said Peter Lowman, chief investment officer at Investment Quorum in London.

“Nonetheless, central bank policy remains supportive and therefore the equity markets are likely to continue their upward trajectory but with some corrective periods along the way.”

But responses to a separate question suggested fund managers were still cautious in their approach.

Asked what is the most likely change to their portfolios, over 85 per cent of the fund managers, or 18 of 21, said they would “roughly maintain the current risk positioning.” Those views were broadly unchanged from the July survey.

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“This crisis is already telling us that it will not be a neat and tidy economic global downturn followed by an equal and opposite neat and tidy upturn, like one might see in a traditional economic cycle,” said Mark Robinson, chief investment officer at Bordier & Cie (U.K.).

“There are clearly still many uncertainties related to the virus itself and uncertainty about the scale and shape of the recovery, so some caution is still rightly warranted.”

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