Money managers are increasingly skeptical of a 2015 U.S. interest rate hike, Bank of America Merrill Lynch’s latest monthly fund manager survey found.
“Amid fragility in the global economy and earnings,” a net 47% of managers now believe the Federal Reserve will raise rates in 2015, down from a net 58% in September, said BofA Merrill Lynch in a news release on the survey results.
Global growth expectations remain low, but the reading stabilized after September’s big drop, due in part to China’s improving outlook, BofA Merrill Lynch said. A net 13% of respondents now expect the global economy to strengthen over the next 12 months. Additionally, only a net 22% expect a weaker Chinese economy over the next 12 months, down from a net 34% last month. And while the possibility of a Chinese recession continues to be viewed as the biggest tail risk, that reading dropped to a net 39% from 54% last month.
Investors’ outlook on emerging markets, U.K. and eurozone equities also improved in October. Allocations to U.K. equities and eurozone equities improved to a net 6% underweight and 54% overweight, respectively, compared to a net 25% underweight and 45% overweight last month. Additionally, a net 28% of respondents reported being underweight emerging markets equity, an improvement over last month’s record net 34% underweight.
Other key findings of the October survey include:
- A net 10% of investors reported being underweight U.S. equities, up from a net 6% underweight in September;
- Japanese equity allocations remained relatively stable at a net 23% overweight, compared to a net 22% last month;
- Allocations to commodities and bonds improved to a net 41% underweight and 23% underweight, respectively, from 50% underweight and 32% underweight in September;
- Energy allocations improved to a net 22% underweight from a record net 33% last month while industrials fell to a net 2% overweight, the lowest allocation in three years;
- Average cash levels remain high at 5.1% of portfolios, but down from 5.5% last month;
- A net 19% of managers believe the current global fiscal policy is too restrictive, up from a net 10% last month; and
- A net 26% of respondents believe corporate operating margins will decrease over the next 12 months, up from a net 18% last month.
The survey of 209 money managers representing $512 billion in assets under management was conducted Oct. 2 through Oct. 8.
