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BofA Merrill Lynch February Fund Manager Survey shows investor anxiety but does not give the all clear to buy the dip

Redacción - Martes, 13 de Febrero

Highlights include:  A record one-month jump in net % of investors indicating they have taken out protection against a sharp fall in equity markets in the next 3 months, at net -30% in February from net -50% in January. Fund managers are rotating into cash and out of equities, reducing risk and cyclicality

·         Average cash balance rises to 4.7% this month, up from 4.4% in January

·         Allocation to equities fell to net 43% from net 55% overweight, the largest one-month decline in two years; allocation to bonds now at a record low of net 69% underweight

·         Respondents indicate this S&P bull market will peak on average at 3100

·         An inflation-induced bond crash (45%) remains at the top of the list of tail risks cited by investors; the top three are rounded out by a policy mistake by the Fed/ECB (18%) and market structure (13%)

·         Long FAANG+BAT (26%), Short USD (20%) and Short Volatility (18%) are considered the most crowded trades

·         A majority of investors surveyed (70%) now believe the global economy is in the “late cycle,” the highest level since January, 2008 

·         Only 5% of fund managers surveyed say global interest rates will be lower in the next year; 80% expect them to rise

·         A record net 24% of investors surveyed say global corporate balance sheets are overleveraged; the net percentage that would like to see companies return cash to shareholders remains close to 2009 lows


“While this month’s survey shows that investors are holding on to more cash and allocating less to equities, neither trait moves the needle enough to give the all clear to buy the dip,” said Michael Hartnett, chief investment strategist.

“European equity allocation is at its lowest in almost a year,” said Manish Kabra, head of European quantitative equity strategy. “Despite improving confidence in European earnings, the US and Emerging Market profit cycles seem more favourable to investors right now,” he added.

“The Japanese market exhibited sensitivity to global risk sentiment in the recent market sell-off,” said Shusuke Yamada, chief Japan FX/Equity strategist. “It seems stabilization of the global equity market and a weaker JPY may be needed for global interest to return.”

Note: BofAML's February Global Fund Manager Survey was conducted Feb. 2-8; 196 panellists with $575bn AUM participated in total. 163 participants with $510bn AUM responded to the Global FMS questions and 81 participants with $168bn AUM responded to the Regional FMS questions.

Global Fund Manager Survey: Close but no BTD from FMS

•   Fed FMS shows anxiety but does not give all clear to Buy the Dip
•   Cash rose, equity allocation fell...neither needle moved sufficiently to give all clear for risk assets
•   Pain trade is stronger USD, hawkish central banks, slowing global growth

European Fund Manager Survey: De-risking

•   Investors' protection against sharp drop in equities surges to above avg levels. Global and EU investors increase cash levels
•   Allocations to European stocks drop to nearly1-year-lows as earning backdrop seen as even more positive in the US and EM
•   Highest % of EU investors expect Value to outperform Growth on a 12-month horizon in >2 years. Cyclical sectors preferred.

Japan Strategy Fund Manager Survey: BoJ risk subsides, but JPY appreciation a risk

•   Perceived BoJ risk may have subsided due to BoJ communication and reports of Kuroda's reappointment.
•   But Japan allocation was unchanged while fewer investors want to overweight over next 12 months.
•   FX stability may be key for Japan equities as fewer investors expect JPY weakness now.