Managers' concerns cross Atlantic to U.S. from Europe

Money managers' optimism in Europe is at its highest level in more than a year while the upcoming U.S. fiscal cliff has surpassed the European debt crisis as respondents' top tail risk, according to the Bank of America Merrill Lynch September Survey of Fund Managers.

Thirty-five percent of respondents said the fiscal cliff is the biggest tail risk. It is the first time since April 2011 that the European debt crisis was not seen as the largest tail risk. The debt crisis received 33% of responses, down from 48% in August.

“The upcoming election is putting these fears into sharper focus,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, in a news release.

Also reversing recent trends, a net 1% of global asset allocators are overweight eurozone equities, the first time since February 2011 and up from a net 12% underweight last month.

European respondents were split 50%-50% on whether the region's economy will weaken or strengthen in the next 12 months, up from a net 23% who said it would weaken in August. European investors have increased allocations to 12 out of 19 European sectors.

Asset allocators overall are a net 11% overweight on U.S. equity, down from a net 13% last month, while a net 58% said U.S. equities are the most overvalued globally, up from 51%. A net 43% said the eurozone is the most undervalued.

Respondents expect to see the global economy strengthen in the next 12 months despite a growing view that corporate earnings will deteriorate. A net 17% expect the world economy to strengthen, but a net 28% said corporate profits will deteriorate in the same time period, up from 21% in August. A net 59% said corporations are underinvesting while a net 41% said corporations should increase capital spending.

A total of 253 money managers with $681 billion in assets under management participated in the survey Sept. 7-13.