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INVESTING/PORTFOLIO STRATEGIES

Record number of managers foresee higher growth, lower inflation — BofA survey

A record 34% of money managers predict above-trend growth and below-trend inflation over the next 12 months, said Bank of America Merrill Lynch's monthly fund manager survey released Tuesday.

Additionally, a net 56% of investors surveyed believe global profits will improve over the next 12 months, the highest reading in three years and up from a net 50% in April. A net 2% also believe corporate earnings will rise 10% of more over the next year, the highest reading since July 2011.

The May survey also found a net 37% of managers believe global equities are overvalued, the highest reading since January 2000, and up from a net 32% in April, while a net 82% pointed to the U.S. as the region where equities are the most overvalued, relatively unchanged from a net 83% last month. Meanwhile, a net 20% of investors think European equities are undervalued and a net 44% think emerging markets equities are undervalued, compared to a net 19% and 47%, respectively, last month.

Global equity, U.S. equity, eurozone equity and U.K. equity allocations rose to a net 45% overweight, net 17% underweight, net 59% overweight and net 27% underweight, respectively, in May, compared to a net 40% overweight, net 20% underweight, net 48% and net 34% underweight in April. The May eurozone equity reading is the highest percentage since March 2015. On the flip side, emerging markets equity and Japanese equity allocations fell to net overweights of 41% and 12%, respectively, compared to net overweights of 44% and 15% last month.

Bond and commodity allocations, meanwhile, rose to net underweights of 57% and 3% respectively, compared to net underweights of 62% and 4% last month.

Other findings from the May survey include:

  • Chinese credit tightening replaces European disintegration as the biggest tail risk for the first time since January, according to 31% of investors, followed by a crash in global bond markets (19%) and trade war (16%).
  • Long Nasdaq replaces long U.S. dollar as the most crowded for the first time in five months, according to 26% of investors. Still, a net 23% of investors view the U.S. dollar as overvalued, up from a net 21% last month.
  • A net 32% of investors surveyed believe the euro is undervalued, the highest reading since September 2002.
  • Average cash holdings remain at 4.9% of managers' portfolios.

The survey of 213 money managers representing $645 billion in assets under management was conducted May 5-11.