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Bullish fund managers pile into shares

Private investors may be showing signs of caution, but fund managers are growing more bullish, taking their shares holdings to a two-year high.

 
Bullish fund managers pile into shares
 

Fund managers have shrugged off the idea of a market correction this year and are pouring more money into equities, according to the latest Bank of America Merrill Lynch fund manager survey.

Robust markets continue to stoke investor confidence and allocation to equities is now at a two-year high of net 55% overweight.

This is in comparison to fund managers’ allocation to bonds, which sits at a four-year low of net 67% underweight.

Fund managers' bullishness contrasts markedly with the more cautious approach from private investors, who have been piling into bond funds at the expense of equity investments.

Portfolio managers haven't been this overweight to equities relative to government bonds since August 2014. 

Managers are confident that stock markets can continue their upward trajectory at least for this year despite high valuations, as the balance of investors taking out protection against a near-term correction has fallen to net -50%, the lowest level since 2013.

Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, said volatility, which has hit record lows, was due soon.

‘Investors continue to favour equities,’ he said. ‘By the end of the first quarter, we expect peak positioning to combine with peak profits and policy to create a spike in volatility.’

However, managers do not agree, with the majority believing markets won't hit their peak until 2019 or beyond.

Managers are confident corporate earnings can push up further and a net 15% believe they will rise by 10% or more over the year, the highest level believing so since 2011.

The biggest risk to markets is inflation or a crash in global bond markets, according to 36% of managers, followed by a policy mistake by either the US Federal Reserve or European Central Bank at 19%, and market structure at 11%.

The number of managers expecting faster global growth this year jumped 16% to 47% and in order to take advantage of it they are rotating into cyclical investments, which are affected by the ups and downs of the economy, and out of defensive plays like telecoms and utilities. This allocation to defensives is the second lowest level since 2005.

With the US looking expensive and Brexit uncertainty putting investors off the UK, the eurozone, emerging markets and Japan remain fund managers favourites. Allocation to the UK has fallen to its lowest point since 2001.

1 comment so far. Why not have your say?

Alastair Kendall

Jan 17, 2018 at 14:36

RIT have reduced their equity holdings down to 35% and increased Absolute Return to 25% and Hedge Funds to 21%. They obviously see some hard times ahead.

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