BofA Merrill Lynch Fund Manager Survey Finds Investors Putting Cash to Work Despite Concerns Over Profits and Growth
January 20 2015 - 8:30AM
Business Wire
U.S. Equities and Real Estate in Favor; Too
Soon to Back Oil
Global investors have put some of their cash to work in spite of
a more downbeat assessment of global growth and corporate profits,
according to the BofA Merrill Lynch Fund Manager Survey for
January.
Investors have regained a muted risk appetite, turning to U.S.
equities, bonds and real estate. The proportion of respondents
overweight cash has tumbled to a net 17 percent from a net 28
percent last month. Average cash positions have fallen to 4.5
percent of portfolios, the lowest in six months, down from 5.0
percent in December.
More than two-thirds of investors say equities will outperform
other major asset classes in 2015. Accordingly, a net 51 percent 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 percent of asset allocators are overweight U.S. equities, up
from a net 16 percent a month ago. However, a net 75 percent say
U.S. 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
percent. Investors also reduced net underweight positions in
bonds.
Investors are less optimistic about the economy. A net 51
percent of the panel believes the world economy will improve this
year, down from a net 60 percent in December. But, as deflation
surfaces in the Eurozone, expectations of stimulus from the
European Central Bank (ECB) are high. This month, 72 percent
predict QE to start in the first quarter. Furthermore, the third
quarter is now the most likely timing for a rate hike by the U.S.
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.
Equity allocations defy weaker corporate outlook
Allocations towards equities remain strong despite concerns
about the prospects for profits and margins. A net 8 percent of
global investors expect corporate operating margins to fall in the
coming 12 months, up from a net 1 percent in December. The
proportion of the panel expecting corporate profits to improve has
fallen to a net 38 percent from a net 46 percent.
Only a small minority believes that a double-digit rise in
profits is possible in the coming year. A net 53 percent now says
that it is unlikely profits will improve 10 percent or more, up
from a net 32 percent in December. On a regional basis, a net 41
percent of the panel says that profit outlooks are the most
favorable in the U.S., with a net 20 percent backing Japan.
Oil and Energy – undervalued yet underweight
Investors see value in oil and in energy stocks – but it seems
too soon for them to have made a move. A net 45 percent of
respondents say that oil is undervalued, up from a net 36 percent
in December and at the highest level in exactly six years. At the
same time, a net 30 percent of the panel says that energy stocks
are the most undervalued – up from a net 21 percent.
Allocators to energy and commodities remain weak. The proportion
of investors underweight energy stocks has increased in the past
month to a net 25 percent from a net 22 percent. Asset allocators
have modestly increased allocations to commodities but a net 24
percent remains underweight.
Emerging markets fall further out of favor
With questions hanging over China’s economy, bearishness towards
Global Emerging Market equities has intensified. A net 13 percent
of asset allocators are underweight the region compared with a net
1 percent being overweight in December. Furthermore, a net 17
percent of investors say that emerging markets is the region they
most want to underweight in the coming year. A net 41 percent of
respondents to the regional survey say that they expect weaker
growth in China in the coming year.
Fund Manager SurveyAn overall total of 219 panelists with US$630
billion of assets under management participated in the survey from
9 to 15 January 2015. A total of 177 managers, managing US$514
billion, participated in the global survey. A total of 97 managers,
managing US$231 billion, participated in the regional surveys. The
survey was conducted by BofA Merrill Lynch Global Research with the
help of market research company TNS. Through its international
network in more than 50 countries, TNS provides market information
services in over 80 countries to national and multi-national
organizations. It is ranked as the fourth-largest market
information group in the world.
BofA Merrill Lynch Global ResearchThe BofA Merrill Lynch Global
Research franchise covers over 3,400 stocks and 1,100 credits
globally and ranks in the top tier in many external surveys. Most
recently, the group was named Top Global Research Firm of 2014 by
Institutional Investor magazine; No. 1 in the 2014 Institutional
Investor All-Europe survey; No. 1 in the 2014 Institutional
Investor All-Asia survey for the fourth consecutive year; No. 1 in
the Institutional Investor 2014 Emerging EMEA Survey; No. 2 in the
2014 Institutional Investor All-America survey; and No. 2 in the
2014 All-China survey. The group was also named No. 2 in the 2014
Institutional Investor All-Europe Fixed Income Research survey; and
No. 2 in the 2014 All-America Fixed Income survey for the third
consecutive year.
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