A recent Bank of America-Merrill Lynch survey of fund managers found that investors have regained their appetite for risk despite rising concerns over the world economy and the corporate-profit outlook. Investors appear to have a growing conviction that rates will remain low and have reduced their cash holdings and increased equity positions, most notably in global emerging markets, the survey shows.
Average cash balances fell to about 3.7 percent of portfolios in early April, down from 4.1 percent in March, according to the survey of 282 fund managers with about $757 billion in assets under management. Some 11 percent of respondents are overweight cash, down from a net 18 percent last month. And 50 percent of asset allocators are overweight equities, up from a net 45 percent one month ago.
As for emerging-market stocks, about 22 percent of investors are overweight there, up from zero in March. Asset allocators have also increased their exposure to commodities, and 24 percent are overweight in the asset class this month, up three percentage points from March.
In terms of an overall outlook, the proportion of the fund-manager panel that believes the world economy will strengthen in the next 12 months has fallen to 27 percent from 58 percent in February. Also, just 19 percent of respondents expect corporate profits to improve in the coming year, compared with 32 percent in March.
“Central banks have succeeded in re-inflating economies, but investors are split on whether they have stimulated real economic growth,” says Gary Baker, head of European-equities strategy at BofA Merrill Lynch global research, in a statement. “Investors are reluctantly overweight equities,” adds Michael Hartnett, chief global-equity strategist. “The combination of zero rates and rising inflation makes them fearful of bonds and cash.”
Though 25 percent of respondents expect China’s economy to weaken in the coming year, sentiment towards the region’s equities has improved. More than 20 percent of regional fund managers say that emerging markets are where they most want to take an overweight position in the future.
Close to 30 percent of respondents believe that emerging-markets corporates have the most attractive profit outlook. In addition, among global emerging-markets investors, Asia is the most preferred market for 58 percent of those surveyed, while Latin America is the least preferred.
Still, 30 percent of asset allocators were overweight U.S. equities in April, up from a net 23 percent in March. In addition, 48 percent believe that the outlook for U.S. corporate profits is stronger than any other region.
In Europe, though, less than 10 percent of the panel believes the region’s economy will strengthen in the next 12 months, down sharply from a net 32 percent in March. Nonetheless, cash positions fell in April to an average 3.3 percent of portfolios, down from 3.7 percent in March.
Lipper Bestows Awards
In other industry news, Lipper named eight winners of the U.S. Lipper Fund Awards 2011 at a ceremony at the Plaza Hotel in New York in late March. MFS Investment Management won the Best Overall Fund Group-Large Award. Clyde McGregor, co-manager of the Oakmark Global Fund and Oakmark Equity & Income Fund won the inaugural Lipper Award for Excellence in Fund Management.
Delaware Management Company swept three group trophy awards, while Loomis Sayles & Company, PIMCO and Janus Capital Management were repeat winners of their respective group trophy awards in 2010 and 2011.