Wednesday, October 16, 2013
Fund Manager's Current Asset Allocation - October
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 as the results reflect how managers are positioned in various asset classes. These managers oversee a combined $700b in assets.
Overall, fund managers remain very bullish on risk (or, as BAML puts it, "steadfastly optimistic, undisturbed by events in DC"). In September, exposure to global equities was the second highest since the survey began in 2001, while exposure to fixed income was at the second lowest ever.
Remarkably, with US equities having fallen 5% in the interim, manager's equity exposure (49% overweight) is still about 1 standard deviation above the 10 year mean. And although treasuries have performed as well as equities over the past 10 weeks, managers remain highly under-exposed to fixed income (58% underweight).
Within equities, managers are positioned for capital appreciation. Overall, their exposure to tech is the highest of any sector; for industrials, it is near the highest of the past decade. Conversely, their exposure to lower growth (but income-producing) consumer staples reached a 7-year low in October. In sum, manager's are positioned long beta, clearly expecting upside momentum from equities to continue.
In the past, when managers have been this overweight growth sectors like industrials, those sectors have underperformed until their exposure has been reduced. Conversely, when their exposure to safer, income producing sectors like consumer staples has been this low, those sectors have outperformed. So, while current (bullish) market psychology is biased towards high beta, lower beta is likely to outperform in the months ahead.
Managers now have their largest overweight position in Eurozone equities, up more than 170% since August. US equities had been the preferred region the past several months, but exposure was reduced first due to taper fears and then debt ceiling fears.
Emerging markets have been outperforming SPX over the past 3 months while managers are still 10% underweight. Exposure to emerging markets in August, when the rally was still getting started, was the lowest since the survey began in 2001.
You can see from the data that it should mostly 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 was the worst performer until August. In comparison, they were 20% underweight Japan in December and it was the best equity market by far through May. Now, the big overweight is in Europe.
Survey details are below.