Mutual fund managers are reducing their exposure to equities and shifting to cash in anticipation of U.S. interest rate hikes, reports the June edition of the BofA Merrill Lynch Fund Manager Survey.
The survey found that institutional investors are also paring the risk in their portfolios amid concerns about a possible default in Greece and a possible bubble in Chinese equities. As a result, report states that the proportion of investors who are overweighted in equities is down to a net 38% from 47% in May while cash is up to 4.9% of portfolios from 4.5% in May.
“Higher cash levels show how caution is in the air, with 65 trading days until we expect the [U.S. Federal Reserve Board] to tighten,” said Michael Hartnett, chief investment strategist with Bank of America Merrill Lynch’s global research department.
Indeed, expectations of higher rates are at their highest level since May 2011, with a net 80% now forecasting a rise in short-term rates, the report states. Moreover, it adds that a majority of survey respondents now expect a negative resolution of the talks with Greece, with 15% predicting the country’s exit from the eurozone and 42% predicting a default without exit.
In addition, the survey found that seven of 10 investors say China’s equity market is in a “bubble” and a net 50% see China’s economy weakening. Against that background, the percentage of investors expecting to underweight global emerging markets is up to a net 21% from a net 6% in May.
A total of 207 panellists with US$562 billion in assets under management participated in the survey from June 5 to 11.