Institutional investors are avoiding risk more now than they have in the past seven years, according to the most recent Merrill Lynch survey of fund managers. Some 30% of the managers surveyed Feb. 1-7 said they’ve hedged against falls in the equity markets over the next three months. Meanwhile, cash assets, often seen as a safe haven in turbulent markets, are at an average of 4.7% among respondents. About 41% of managers are overweight in cash, the highest level since the Sept. 11 terrorist attacks, the survey noted.
“Risk aversion is so extreme and cash levels are so high, that the challenge is now to identify the catalyst that prompts money to return to the stock market,” said David Bowers, independent consultant to Merrill Lynch. “While it’s not clear what that catalyst will be, there’s no doubt that the ability to draw a line under the credit crunch will be an important step.”
Fund managers’ outlook for corporate profits looks bleak, with 68% expecting deterioration in profits over the next 12 months, up from 57% in January; 16% saying the global economy was in a recession, double the number from last month; and 28% thinking a recession is likely in the next 12 months, up from 19% in January.
The February survey was completed by 190 managers with a combined $587 billion in assets under management.
