All Bulled Up?

Most mutual fund managers are bullish on stocks, according

to Merrill Lynch. Its January fund manager survey found that a high

percentage of the 307 managers surveyed think equities are undervalued by at

least 10%. “Managers’ overall optimism has improved, but it hasn’t gotten

carried away,” says Merrill Equity Strategy Analyst Sarah Franks. “You hear

a lot of stories now that the investment community is very bullish–’all

bulled up’ is the phrase people like to use. But that is not necessarily the

case. They are optimistic, but they haven’t gone wild since last month.”

However, looking back over the last two years of the survey, Franks found

that “when most managers think the market is cheap–the situation we have

now–usually they have lots of cash to put to work, which is not what we have

now,” she says. “So yes, they think it is cheap, but can they do anything

with it?”

The average cash balance among the 307 participants fell again this month

to 4.2% from 4.4% in December and 4.6% in November. Excluding hedge funds,

institutional and retail fund managers’ cash levels are the lowest Merrill

Lynch has ever recorded. “Basically, between December and January the market

was up, but you have more managers thinking equities are more undervalued