Money managers are continuing to reduce their cash levels amid growing optimism on global growth, inflation and corporate profits, said Bank of America Merrill Lynch's monthly fund manager survey issued Tuesday.
The December survey found a net 57% of managers expect the global economy to improve over the next year, the highest reading in 19 months and up from a net 35% in November. Additionally, a net 56% expect global corporate profits to improve over the next 12 months, the highest reading in 6.5 years, and up from a net 29% last month. A net 84% expect a higher global consumer price index over the next year, the second-highest reading since June 2004, and compared to 85% last month.
At the same time, average cash holdings declined to 4.8% of managers’ portfolios in December, down from 5% last month and 5.8% in October.
In regards to asset allocation, global equity allocations rose significantly over the month to a net 31% overweight, the highest reading in a year, and up from a net 8% overweight in November. Bond allocations, meanwhile, dropped to a net 58% underweight, the lowest reading in 12 months, and down from a net 48% underweight last month, and commodity allocations rose to a net 5% overweight, the highest reading in four years and up from a net 2% underweight last month.
From a regional perspective, U.S., Japanese and U.K. equity allocations rose to a net 15% overweight, 21% overweight and net 29% underweight, respectively, up from a net 4% overweight, net 5% underweight, and net 35% underweight in November. On the other hand, eurozone equity and emerging market equity allocations fell to a net 1% underweight and a net 3% overweight, respectively, down from net overweights of 8% and 4% last month.
Other findings from the December survey include:
- European Union disintegration/banks default was cited as the biggest tail risk by 29% of investors;
- a record net 74% of investors think companies are currently underinvesting;
- more than one-third of investors believe “long U.S. dollar” is the most crowded trade right now; and
- a net 37% of investors think current global fiscal policy is too restrictive, down from a net 56% last month.
The survey of 211 money managers representing $568 billion in assets under management was conducted Dec. 2-8.