Global fund managers recovered some of their risk appetite in January and invested more of their cash despite the continuing oil price weakness and concerns over corporate earnings and global growth, according to the BofA Merrill Lynch Fund Manager Survey for January. The investors turned to US equities, bonds and real estate. The proportion of respondents overweight cash has tumbled to a net 17% from a net 28% last month. Average cash positions have fallen to 4.5% of portfolios, the lowest in six months, down from 5.0% in December.
More than two-thirds of investors say equities will outperform other major asset classes in 2015. Accordingly, a net 51% of asset allocators are overweight equities, down one percentage point since last month but the third-highest reading in the past year. A net 24% of asset allocators are overweight US equities, up from a net 16% a month ago. However, a net 75% say US equities are overvalued – the highest reading since the question first appeared in 2001. The proportion of asset allocators overweight real estate has climbed six percentage points to a net 9%. Investors also reduced net underweight positions in bonds.
Investors are less optimistic about the economy. A net 51% of the panel believes the world economy will improve this year, down from a net 60% in December. But, as deflation surfaces in the Eurozone, expectations of stimulus from the European Central Bank (ECB) are high. This month, 72% predict QE to start in the first quarter. Furthermore, the third quarter is now the most likely timing for a rate hike by the US Federal Reserve, verses the second quarter a month ago.
“Lower oil prices and hopes for policy stimulus are sustaining both global growth expectations and investor confidence,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.
“Amid expectations of ECB stimulus, consensus is convinced that Europe is the region to overweight in the coming year. But, on an absolute basis, European stocks will be vulnerable to headwinds from outside the region,” said Manish Kabra, European equity and quantitative strategist.
An overall total of 219 panellists with US$630bn of assets under management participated in the survey from 9 to 15 January 2015. A total of 177 managers, managing $514bn, participated in the global survey. A total of 97 managers, managing $231bn, participated in the regional surveys.