Fund managers’ asset allocations reveal their bearish thinking stemming from expectations for weaker GDP growth and the widely held view that secular stagnation is taking place.
Allocations to global equities have “slumped” to 6% overweight, their lowest level since September 2016. The fall is of 12 percentage points from the month before, according to the Bank of America Merrill Lynch Fund Manager Survey for February.
And although the average cash balances were slightly lower when fund managers were surveyed earlier this month – down a percentage point from January to 4.8% – allocations to cash had risen six percentage points to a net 44% overweight, which the bank said was the highest overweight level since January 2009.
“Despite the recent rally, investor sentiment remains bearish,” said Michael Hartnett, chief investment strategist at the bank. But he added that fund manager positioning was still positive for risk assets.
Among the findings were:
- 46% expect global GDP growth to weaken over the next 12 months;
- 55% are bearish on both the growth and inflation outlook for the global economy;
- Investors’ worries about the credit cycle “remain elevated”;
- 46% of fund managers find corporate balance sheets to be overleveraged;
- 42% of investors expect global profits to deteriorate in the next year, though this is a ten percentage point improvement on the previous month’s decade-long low.
The survey also found that 18% of fund managers considered being long on emerging markets to be the most crowded trade. This was the majority view for the first time in the survey’s history, marking a “major reversal” from short emerging markets ranking as number three just last month.
Among European managers, the research found that allocations for EU stocks were up – but that intentions to own EU equities had fallen to a six-year low on a 12-month forward basis amid poor profit outlook.
The survey had 173 participants for the global section.
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