Money managers are reducing their cash holdings despite concerns over corporate profits and inflation, said Bank of America Merrill Lynch’s monthly fund manager survey.
Falling oil prices lowered inflation and profit expectations in January. A net 38% of respondents expect corporate profits to improve over the next 12 months, down eight percentage points from December. However, a net 17% of investors reported being overweight cash in January, down 11 percentage points from December.
Growth expectations remain “resilient” despite the reduced corporate outlook, said Brian Leung, global investment strategist at Bank of America Merrill Lynch, in a telephone interview. A net 51% of respondents expect the global economy to strengthen over the next 12 months, down from a net 60% in December. If the oil price collapse does not boost growth as investors expect, those growth expectations could collapse with more investors shifting out of equities and into fixed income, Mr. Leung said.
This month’s survey also showed investors are becoming “more entrenched” in their sector and region views, Mr. Leung added.
Energy and commodity allocations remained low in January. A net 25% were underweight energy vs. a net 23% underweight in December. A net 24% were underweight commodities vs. a net 26% underweight last month.
At the same time, U.S. equity allocations remained strong. A net 24% reported being overweight U.S. equities, up eight percentage points from last month.
Regarding the other asset classes, sentiment toward emerging markets and U.K. equities worsened with a net 13% and 24%, respectively, underweighting the regions. Last month, a net 1% reported being overweight emerging market equities. The U.K. reading is the lowest on record since September 2011.
The survey of 219 fund managers managing a total of $630 billion was conducted Jan. 9-15.