Big money turning sights outside the US in 2014
Big investors are putting their bets in for 2014, and so far it looks like the smart money is heading outside the U.S.
After a two-year run in which American equities dominated the investing landscape, the pendulum clearly has begun to swing globally in the second half of 2013 and more of that is expected in the year ahead.
Institutional investors responding to a Citigroup quarterly poll rated European stocks as the most-favored class, with Asia-Pacific coming in second and U.S. pulling up third.
"One of the biggest surprises was the belief that European equities would generate the best gains in 2014, overtaking the US and emerging markets," Tobias Levkovich, Citi's chief market strategist, said in a note accompanying the survey. "This focus on Europe was fascinating in that this was the first time in the quarterly poll that such results were registered."
The surveys reflect recent money trends: Global exchange-traded funds took in $48.8 billion in the third quarter, while U.S funds attracted $31.5 billion, despite outperforming their counterparts around the world.
(Read more: Sterling watchers wary of 'shaky' UK recovery)
Interestingly, the slide away from American stocks came even though most respondents had a favorable view of the U.S. market and economy.
About half said they expected the S&P 500 to close above 1,800 (6 percent above current levels) and some 35 percent projected it to close above 1,850 (9 percent from Monday's trading).
Of course, either of those gains actually would represent a substantial slowdown from 2013's surge of more than 18 percent.
The survey provides at least one clue as to why enthusiasm has eased a bit on U.S. stocks: a slowdown in multiple expansion, or the growth in the price-to-earnings ratio.
Investors found the 2014 corporate earnings estimates of more than 14 percent growth to be too rich, expecting that the actual increase will be closer to 6.6 percent.
(Read more: Why earnings season might turn out to be a dud)
"This may reflect margin concerns but it is telling that 60 percent expect small caps to outperform now, representing the almost exact opposite position taken last year at this time," Levkovich said.
As far as other sectors, financials and industrials are expecting to perform best, while big dividend-payers are likely to be out of favor as interest rates increase.
Large investors expect benchmark U.S. rates to climb past 3 percent next year, a level where they also forecast growth in gross domestic product.
(Read more: Fed battled over ending bond buying)
Though the survey did not address the issue, another factor likely tempering U.S. enthusiasm is the unwinding of the Federal Reserve's bond-buying program known as quantitative easing. The central bank is expected to begin pulling back the $85 billion a month program either late this year or early in 2014.
Consequently, institutional investors were clear on the two least-favored respective asset classes: Commodities and bonds.
—By CNBC's Jeff Cox. Follow him on Twitter @JeffCoxCNBCcom.