Investors remain overweight assets that outperform in periods of low growth and low rates, according to Bank of America Merrill Lynch’s September global fund manager survey. Pollsters saw no signs of a rotation into value assets, which are geared toward rising interest rates and earnings.
Recession concerns continued to dampen investors’ risk appetite, as 38% of survey respondents said they expected a recession over the next year, up four percentage points from August and the highest net recession risk since August 2009.
Fifty-nine percent said a recession was unlikely, down five points from last month.
Asked about the inversion of the two-year/10-year U.S. Treasury yield curve, 64% of those surveyed said an inversion did not portend a recession in the next year.
“We remain contrarian bullish, as this month investors have shown only a modest improvement in risk appetite,” Merrill’s chief investment strategist Michael Hartnett said in a statement. “Fiscal stimulus would boost investor optimism.”
Investors cited German fiscal stimulus, a 50 basis-point rate cut by the Federal Reserve and Chinese infrastructure spending as the policies that would be most bullish for risk assets over the next six months.
On the U.S. front, investors in the survey identified infrastructure spending as the area of economic policy with the most bipartisan support on Capitol Hill.
The survey was conducted Sept. 6 to 12 among 235 panelists with $683 billion in assets under management.
Fund managers’ cash levels fell to 4.7% from 5.1% in August, well off the June high of 5.7% and just above the 10-year average of 4.6%. Investors’ cash allocation fell two points to 39% overweight, still well above the long-term average, according to Merrill.
The fund manager cash rule, which has now been in “buy” territory for 19 months, holds that when average cash balance rises above 4.5%, a contrarian buy signal is generated for equities. When the cash balance falls below 3.5%, a contrarian sell signal is generated.