Money managers' global equity allocations continued to decline in March, while their global bond allocations rose from a record low, said Bank of America Merrill Lynch's monthly fund manager survey released Tuesday.
Managers' global equity allocations dropped to a net 41% overweight this month, down from a net 43% overweight in February, while their global bond allocations rose to a net 64% underweight from a record low of a net 69% underweight last month.
Meanwhile, managers' average cash holdings ticked down to 4.6% of their portfolios this month from to 4.7% last month.
Regarding global growth, a net 74% of investors now believe the global economy is in "late cycle," the highest in the survey's history. Expectations for faster global growth fell 19 percentage points to 18% in March, the lowest level since the U.K. voted to leave the European Union in June 2016.
The threat of a trade war (30%) returns to the top of list of tail risks most commonly cited by investors for the first time since January 2017, followed by inflation (23%) and a slowdown in global growth (16%).
More than half — 58% — of investors surveyed believe global earnings per share will grow more than 10% in the next 12 months.
The survey also found that the net percentage of investors who would like to see companies improve their balance sheets is at the highest level in more than eight years.
Other findings from the March survey include:
- Investors are reducing risk by increasing allocations to defensive investments such as consumer staples, real estate investment trusts, the U.S. and banks; they are rotating out of cyclical investments and value plays, including energy, discretionary, materials and the U.K.
- Allocations to banks climbed to the second highest level on record, with a net 36% of investors surveyed indicating they are overweight the sector.
- Pessimism toward U.K. equities hit an all-time high as a net 42% of investors surveyed said they are underweight the region.
- Investors are still overweight Japan equities (net 26%), and for the first time since 2009, most fund managers do not expect the yen to depreciate over the next 12 months.
"Cracks in the bull case are starting to emerge, with fund managers citing concerns over trade, stagflation and leverage," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, in a news release about the survey results. "Investors have yet to act on these fears, however, as rates and earnings are keeping the bulls bullish."
The survey of 201 money managers representing $579 billion in assets under management combined was conducted March 9-15.