Fund Managers Bullish, Haven’t Hit ‘Peak Greed’ Yet: Merrill

Investors around the world expect stronger growth, higher inflation and higher profits, according to Bank of America Merrill Lynch’s December global fund manager survey.

The survey, released Tuesday, found that the share of investors expecting global growth had jumped to net 57% from net 35% in November, a 19-month high, while expectations of global inflation were at the second highest percentage level in some 12 years, net 84% from net 85% last month.

BofAML conducted the survey during the first week of December among 173 of its clients, which had $473 billion in assets under management.

Fund managers in the poll were the most optimistic about corporate profit expectations in more than six years, with a net 56% saying global profits would improve in the next 12 months, up from 29% in November.

Cash levels fell again in December to 4.8% from 5% in November and 5.8% in October.

BofA said that average cash balances above 4.5% generated a contrarian buy signal and those below 3.5% a contrarian sell signal.

“Fund managers have pushed pause on a risk rally, with cash balances falling sharply over the past two months,” Michael Hartnett, Merrill’s chief investment strategist, said in a statement.

“With expectations of growth, inflation and corporate profits at multi-year highs, Wall Street is sending a strong signal that it is bullish.”

Merrill noted that on three previous occasions, in 2001 and 2002, when cash was down one percentage point in two months, a risk rally “paused.” However, it said, the survey had not yet shown “peak greed”: Cash levels were still high relative to bonds and equities.

Thirty-five percent of investors in the December survey said long U.S. dollar was the most crowded trade.

On corporate investment, a record net 74% of investors thought companies were currently underinvesting.