BofA: Money manager equity allocations continue to drop

Money managers' global equity allocations continued to decline in April, said Bank of America Merrill Lynch's monthly fund manager survey released Tuesday.

Managers' global equity allocations dropped to an 18-month low of a net 29% overweight this month, down from a net 41% overweight in March. Meanwhile, managers' average cash holdings jumped up to 5% of their portfolios this month from 4.6% last month. Managers' allocation to global bonds rose 9% to a net 55% underweight, up from its record low of net 69% underweight in February 2018.

Only 18% of investors surveyed think equities have already peaked, while 40% expect a peak in the second half of 2018. Meanwhile, 39% think they won’t peak until 2019 or later and 3% answered don’t know/not applicable.

Expectations for faster global growth continue to fall, with net 5% expecting the global economy to be stronger in the next 12 months; this marks the lowest level since the U.K. voted to leave the European Union in June 2016.

The threat of a trade war (38%) remains at the top of list of tail risks most commonly cited by investors, followed by a hawkish policy mistake by the Federal Reserve/European Central Bank (22%) and concerns that the market structure will cause illiquidity (10%).

Other findings from the April survey include:

• The net percentage (20%) of investors expecting profits to improve over the next 12 months fell to an 18-month low.
• Earnings expectations fell 12 percentage points to a net 8%, substantially down from a net 35% in February.
• The net percentage of investors who would like to see corporates improve their balance sheets remains at an eight-year high; a record net 33% think corporate balance sheets are overleveraged.
• Higher inflation remains the consensus view, with a net 82% of investors surveyed expecting the core consumer price index to rise over the next 12 months.

"The bulls have been silenced but not defeated, evidenced by increased cash allocations and low expectations of global growth and profits," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, in a news release about the survey results. "But true bull capitulation is absent, with most investors saying the peak in the stock market is still to come."

The survey of 216 money managers representing a total of $646 billion in assets under management was conducted April 6-12.