Managers shifted more assets into riskier investments this month, apparently inspired by the Federal Reserve’s latest dose of quantitative easing, according to Bank of America Merrill Lynch’s latest global fund managers survey.
The extent of the shift, however, left the firm’s analysts urging caution rather than elation.
A net 41% of respondents said they are overweight equities, up from a net 27% in October and a net 33% underweight in September.
The speed of that shift following the Fed’s Nov. 3 QE2 announcement marks “a capitulation into risk assets to a degree that history suggests should prompt concern,” Gary Baker, head of European equities strategy at BofA Merrill Lynch Global Research, said in a news release.
“It’s possible that the year-end rally has already happened, leaving investors vulnerable to event risk such as a deepening European sovereign debt crisis or a dollar rally,” added Michael Hartnett, chief global equity strategist with BofA Merrill Lynch Global Research, in the release.
For the moment, fund managers have become more optimistic, with a net 35% predicting the global economy will strengthen over the next year, more than double the previous month’s net 15%.
That optimism, however, has fed inflationary expectations, which in turn have prompted greater allocations to equities and commodities, the survey showed. A net 48% of fund managers surveyed now expect inflation to rise in the next 12 months, up from a net 27% in October. A net 45% judged global monetary policy, in the wake of the Fed’s latest easing, to be “too stimulative.”
The survey of 218 fund managers, overseeing $634 billion was conducted Nov. 5-11.