Last updated: 10:25 / Monday, 28 March 2016
BofA ML Fund Manager Survey

Investors’ Cash Levels Go Down, Commodities Positions Up, Views on Credit Are Reversed

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Investors’ Cash Levels Go Down, Commodities Positions Up, Views on Credit Are Reversed
  • Commodities, industrials, energy, materials and Emerging Markets saw inflows
  • 15% of investors believe high yield will outperform high grade in March
  • "Quantitative failure” is seen as one of the biggest tail risk

According to the latest BofA Merrill Lynch Global Research report, conducted from March 4-10, 2016, average cash balances are down to 5.1%, from a 15 year-high of 5.6% in February. While the three top most crowded trades are Shorting Emerging Markets, Long US dollar and Shorting Oil.

“With cash levels now slightly above their 3-year average, investors no longer are sending the unambiguous buy signal we saw last month,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch.

During March investors made a strong rotation of positioning into industrials, energy, materials and Emerging Markets, with the biggest monthly jump in allocation to commodities on record. Also, allocation to real estate/REITS experienced its second highest month in survey history.

The survey also noted that investors have flipped their views on credit, with a net 15% believing high yield will outperform high grade in March, versus a net 13% favoring HG in February. Net overweight positions in equities improved.

Regarding the US Monetary Policy, the vast majority of fund managers still expect no more than two Fed hikes in the next 12 months, while a record net 35% think global fiscal policy is still too restrictive, and “quantitative failure” is seen as one of the biggest tail risks.

According to Manish Kabra, European equity and quantitative strategist, “global investors are trimming their extreme regional views and cite ‘quantitative failure’ as the biggest tail risk. However, they remain the least bearish on Europe.” Europe is seen as relative winner as European cash allocations dropped to average levels, and the region remained the most preferred globally; EUR now seen as cheapest since April 2003. Japan has fallen further out of favor as allocation to Japanese equities declines to a 22-month low of net 15% overweight, down from net 24% overweight in February, whereas in Emerging Markets, Chinese growth expectations jump to 4-month highs but a net 26% of investors still expect a weaker Chinese economy over the next 12 months.

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