Tuesday, September 17, 2013
Fund Managers' Current Asset Allocation - September
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 are extremely bullish on risk: exposure to global equities (60% overweight) is at the second highest since the survey began in 2001. At the same time, exposure to fixed income (68% underweight) is at the second lowest ever.
The upshot is this: in the past 4 months, both All World Ex-US Index and the SPX are net flat, but fund managers have increased their equity overweight by 17 percentage points. Since 2007, equities have not moved appreciably higher without moving lower first when funds are extremely overweight equities (dashed line is the current weighting).
Managers now have their largest overweight position in Eurozone equities, more than doubling their weight in the past month. US equities had been the preferred region the past several months, but exposure was reduced due to tapering fears. In the past, a large shift out of the US has coincided with US equity underperformance going forward (yellow shading). Moreover, in the past 3 years, it has also coincided with poor absolute (mid-year) performance in SPX as well.
Interestingly, exposure to emerging markets increased for the first time since February; in August, they were the lowest since the survey began in 2001. Take note: EEM has been outperforming SPX over the past 3 months while managers are still 18% underweight.
Funds are positioned for growth, being long not just equities but also cyclical sectors (discretionary, industrials and banks). Emerging markets in addition to bonds (and dividend paying equities, like staples and telecoms) are at a historic underweighting. Weightings in industrials is at a 10 year high while staples are at a 7 year low.
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 recently. They remain bearish EEM as it starts to outperform. In comparison, they were 20% underweight Japan in December and it was the best equity market by far through May.
Survey details are below.