The recent correction across world equities seems to have nudged fund managers to hold more funds as cash and lighten up on equities, to reduce risk and cyclicality. According to the Bank of America Merrill Lynch fund manager survey for February, a majority of investors polled (70%) believe the global economy is in its “late cycle,” the highest reading since January 2008.
The survey said equity allocation has declined to a net 43% in February from 55% overweight in January, the largest one-month decline in two years. Allocation to bonds was at a record low of 69% underweight; while the average cash balance of the fund managers surveyed rose to 4.7% from a five-year low of 4.4%.
A record net 24% of investors surveyed say global corporate balance sheets are overleveraged; and the net percentage that would like to see companies return cash to shareholders remains close to 2009 lows. “While this month’s survey shows that investors are holding on to more cash and allocating less to equities, neither trait moves the needle enough to give the all clear to buy the dip,” said Michael Hartnett, chief investment strategist.
Inflation-linked bond crash remains the biggest fear among fund managers and other worries include policy mistake by the Federal Reserve. Also, 5% of fund managers surveyed say global interest rates will be lower in the next year while 80% expect the interest rates to rise.
“European equity allocation is at its lowest in almost a year,” said Manish Kabra, head of European quantitative equity strategy. “Despite improving confidence in European earnings, the US and Emerging Market profit cycles seem more favourable to investors right now,” he added.
The findings are from Bank of America Merrill Lynch’s February Fund Manager Survey, which was conducted between February 2 and 8, when stock markets around the world experienced a sell-off. BAML polled 196 fund managers with combined assets of $575 billion.