Fund managers trim exposure to U.S. equities: survey

Additionally, fund managers’ confidence in corporate profitability has also fallen, it notes; with only seven percent of respondents now viewing the U.S. as the region with the most favourable earnings outlook.

At the same time, Merrill reports that the May survey found that overweight cash positions have risen sharply, to a net 23%, which is its highest reading since December 2014. Additionally, it says that fund managers see bonds as the asset class most vulnerable to volatility in 2015; and that they are increasingly underweighting bonds.

Despite these shifts, the survey found that respondents’ macroeconomic views have changed little since last month. Merrill says that a net 59% of fund managers surveyed still expect the global economy to strengthen this year, although forecasts of corporate profitability have fallen a little.

“There is no loss of faith in economic recovery, and positioning still assumes that the U.S. dollar goes up, but doubts are creeping in — hence this jump in allocation to cash,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.

The firm says that 70% of respondents see both growth and inflation remaining below historical trends over the next 12 months. However, the survey also found that fund managers are increasingly divided over the timing of a U.S. interest rate rise — with 36% expecting it to start in the fourth quarter, and 45% seeing it in the third quarter.

A net 39% of respondents now intend to underweight U.S. equities over the next year, Merrill says; yet, it reports that fund managers remain positive on both Europe and Japan as quantitative easing continues in those markets. And, it says that a net 49% and 42% of fund managers are overweight those markets, respectively.

At the same time, fund managers are less negative on emerging markets, Merrill notes. It reports that only a net 6% are now underweight on the sector, compared to April’s net 18%; and, their intention to own emerging markets stocks over the next year has risen similarly, it says.

Merrill also reports that a net 69% of respndents expect the U.S. dollar to appreciate over the next 12 months, which is up slightly from April. In contrast, a net 32% expect the euro to decline, and 35% see the yen declining too.

In terms of commodities, bullishness on oil has fallen, Merrill says. It reports that less than half of fund managers now expect oil to trade at a higher price in 12 months’ time, down from 64% in March and April.

A total of 208 fund managers with US$607 billion of assets under management participated in the survey from May 8 to 14.