Investors have regained some appetite for risk with a strong consensus over a U.S. rate rise next month, according to the BofA Merrill Lynch Fund Manager Survey for November. With growth and inflation expectations notably higher after new U.S. payroll data, they have cut cash holdings and increased exposure to equities, real estate and alternative investments.
· The percentage of asset allocators overweight equities rose significantly by 17 points to a net 43 percent, while lowering cash overweights to their lowest level since July.
· Four-fifths of panelists now expect the U.S. Federal Reserve to raise rates during the current quarter.
· Confidence in the global economy rebounds, with net expectations of it strengthening in the next 12 months up 22 percentage points from October.
· Concerns over a slowdown in China abate: local fund managers turn neutral on the country’s growth outlook – their most positive reading in more than a year.
· Eurozone and Japan strengthen as the most favored equity markets globally, reflecting deeper consensus on the U.S. dollar. A net 67 percent now expect the currency to appreciate in the next year.
· Real estate and alternative investment overweights rise to their second-highest readings in the survey’s history. In contrast, aggressive underweights on commodities and Global Emerging Markets are maintained.
“With consensus very clustered in QE and strong dollar trades, asset price upside appears limited until an ‘event’ curtails the Fed hiking cycle, as in 1994,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.
“While European equities are loved by global investors and the ECB has created some excitement about growth, sector positioning shows local asset managers are lacking conviction and hugging their benchmarks,” said Manish Kabra, head of European quantitative strategy.