Every month, we review the latest BAML survey of global fund managers. Among the various ways of measuring investor sentiment, this is one of the better ones. These managers oversee a combined $700b in assets.
During 4Q12 and 1Q13. fund managers were reducing cash, overweighting equities and underweighting bonds to levels that are close to the bullish extremes seen at prior equity tops. Equity exposure in March, for example, was the second highest since the survey began in 2001.
Overall, fund managers are still bullish on risk. In June, cash levels fell slightly to 4.2%. Equity allocations increased sharply to 48% overweight; still near the high end of their range. Bonds are a net 50% underweight, close to their lows.
Managers are now overweight the US equities by 25%, the highest in 13 months. They were 3% underweight the US in January, for comparison. Europe was increased to 6% overweight; it had been 8% underweight in April and May. Managers reduced Japan to 17% overweight.
You can see from the data that it should be looked at from a contrarian perspective. Fund managers were overweight EEM more than any other market at the start of the year, and it has been the worst performer so far. They are now bearish EEM (9% underweight), so keep it on your radar. They are also more underweight commodities (32%) than at any time since the survey began (a call they got right). In comparison, they were 20% underweight Japan in December and it has been the best equity market by far in 2013.
Survey details are below.
- Cash (4.2%): Cash balances fell slightly to 4.2% from 4.3% in May and April (vs 3.8% in January and February, and 4.1% in December 2012). Typical range is 3.5-5%. BAML has a 4.5% contrarian buy level. More on this indicator here.
- Equities (+48%): A net 48% are overweight global equities, a 7 percentage point increase from May (it seems to have peaked at 57% in March, 51% in February. March was the second highest equity exposure since the survey began in April 2001. In comparison, it was 35% in December 2012). More on this indicator here.
- Bonds (-50%): A net 50% are now underweight bonds, a increase from 38% in May and in-line with underweightings of 53% in March and 50% in April. March was the lowest weighting since May 2011. 81% expect long term rates to rise over the next 12 months; this is the highest level recorded by the survey since 2004.
- US (+25%): Managers are 25% overweight the US, an increase from 20% in May and April (vs 14% overweight in March and 3% underweight in January), the highest in 13 months.
- Japan (+17%): They had been the most overweight (31%) Japan in May since 2006 (vs 20% underweight in December) but this fell for the first time in 8 months to 17% overweight in June.
- Europe (+6%): Europe was increased to 6% overweight in June from 8% underweight in May and April.
- EEM (-9%): EEM had been the most favored region (overweight 43% in February) but this fell to +3% in May, and further to 9% underweight in June, the lowest since December 2008. 25% say it is the region they most want to underweight in the next 12 months.
- Sectors: Sector weighting reflect skepticism over emerging markets, especially China. Commodities are a record 32% underweight (-29% in May, -18% in April, -11% in March, -1% in February).
- Macro: 56% expect a stronger global economy over the next 12 months.