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Global fund managers feeling bullish

Alanna Petroff  |  24 Jan 2013Text size  Decrease  Increase  |  

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Alanna Petroff is a financial journalist with Morningstar UK.


Global fund managers have entered 2013 brimming with optimism and have been pushing more money into equities and, specifically, banking stocks, according to the latest BofA Merrill Lynch Fund Manager Survey.

"The new year sees asset allocators assigning more funds to equities than at any time since February 2011, while their confidence in the world's economic outlook has reached its most positive level since April 2010," said the report from BofA Merrill Lynch Global Research.

Global fund managers now have four times the amount of money allocated to equities compared to the beginning of 2012, said John Bilton, a European investment strategist at BofA Merrill Lynch.


Banks are back

This is also the first time since 2007 that professional investors are reporting they are "overweight" banking stocks in their portfolios.

"Investors had been underweight banks for the past 2157 days, but no longer; that is perhaps the boldest message this month," the January report said.

Investors are now moving into banking stocks because of constructive action and accommodative policies from central banks, said Bilton.

"A bet against the banks is a quasi-bet against the central banks," he said.

Furthermore, plans for aggressive banking regulations were diluted, and that has helped fund managers feel more confident about the sector, he said.


Risk-on attitude

The survey results show investors' appetite for risk is at its highest level in nine years, while the number of investors who are hedging their bets and "taking out market protection" fell to the lowest level since the beginning of 2008.

Despite the optimism, the markets are not at a point of exuberance right now, says Bilton. Instead, he believes this return to optimism is simply a sign of market "normalization".


Time for a correction?

Cautious investors may be sceptical of this growing sense of optimism. BofA Merrill Lynch addressed those bearish investors by stating in the report: "Bullish sentiment does not guarantee a correction in risk assets ... but a January dip would be healthy and without one a larger correction later in 1Q becomes more likely."

Meanwhile, there are still some key economic and market risks that are troubling professional asset managers, including the US fiscal cliff, the sovereign debt problems in the eurozone and a potential "hard landing" in China. These three concerns topped the list of "tail risks," according to the survey.

The January survey by BofA Merrill Lynch compiled responses from 254 institutional investors who manage US$754 billion in combined assets. The survey was conducted between 4 and 10 January 2013.