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BofA: Managers more bullish on global equities, but split on global growth expectations

Money managers' global equity allocations rose in May and cash levels remain high, but the consensus is still positioned as risk-on, said Bank of America Merrill Lynch's monthly fund manager survey released Tuesday.

Managers' global equity allocations climbed to a net 34% overweight this month, up from last month's 18-month low of a net 29% overweight. Meanwhile, managers' average cash holdings ticked down to 4.8% of their portfolios this month from 5% last month, but still above the 10-year average of 4.5%. Managers' allocations to global bonds rose 1 percentage point to net 54% underweight, well off the record low of net 69% underweight in February.

Expectations for faster global growth continued to fall, with just a net 1% of investors indicating they think the global economy will strengthen over the next 12 months. This is the lowest level since February 2016.

Only 2% of investors surveyed expect a recession this year. The consensus for the next recession is by the first quarter of 2020, although investors are split between 2019 (41%) and 2020 (43%).

Commodities allocations were a net 6% overweight, the same as last month, which was the highest since April 2012.

The threat of a Federal Reserve/European Central Bank hawkish policy mistake (30%) returns to the top of the list of biggest tail risks to the market as trade war concerns (25%) ease; the top three are rounded out by concerns over geopolitics causing oil to reach $100 per barrel (12%). In April, the threat of a trade war was cited as the top concern by 38% of managers, following by hawkish policy mistake at 22%.

Also in the survey, global investors currently favor banks, tech and energy, while avoiding staples, telecoms and utilities, with the relative overweight banks vs. underweight utilities now a survey record. Managers are a net 36% overweight to banks, the second-highest level on record, and a net 37% underweight utilities.

In a new survey section on exchange-traded funds, 53% of respondents say they actively use ETFs in their portfolio. ETF investing remains predominantly an equity-focused activity for fund managers, with 77% of survey participants indicating they use them to gain equity market exposure, as compared to just 8% for corporate bonds and 5% for government bonds.

"This month's survey presents good and bad news," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, in a news release about the survey results. "Although cash levels remain high and growth optimism is at the lowest level in over two years, a majority of investors say there is room to grow in this equity bull market and don't see signs of recession anytime soon. Fund managers think the May rally can extend in the near term."

The survey of 223 money managers representing a total of $643 billion in assets under management was conducted May 4-10.