April 12, 2011
Fund managers take on risk, remain wary of Japan
By Greg Morcroft , MarketWatch
NEW YORK (MarketWatch) — Investors are showing more risk tolerance in most markets around the world even as macroeconomic issues remain a concern, but the earthquake- and tsunami-triggered Japanese crisis has, not surprisingly, soured sentiment toward that Asian market, the latest Bank of America Merrill Lynch Fund Manager Survey shows.
The monthly report indicates investors have trimmed cash holdings and upped equity ownership as real interest rates remain low.
A total of 282 panelists with $757 billion in assets under management participated in the survey, taken from April 1 to April 7.
It said emerging-markets stocks saw the greatest increase in equity positions.
“Average cash balances have fallen in April to 3.7% of portfolios, down from 4.1% in March,” the report said.
“A net 11% of respondents are overweight cash, down from a net 18% last month. A net 50% of asset allocators are overweight equities, up from a net 45% one month ago,” the survey said.
Twenty-two percent of the managers polled were overweight emerging-markets stocks, compared with 0% in March.
Regarding asset classes, 24% of fund managers said they are now overweight commodities.
“Investors are putting cash to work while displaying concerns about the outlook. The proportion of the panel believing the world economy will strengthen in the next 12 months has fallen to a net 27% from a net 58% in February,” the report showed.
There’s also growing concern about corporate profits, as the survey showed that only a net 19% of respondents believe corporate profits will improve in the coming year, compared with a net 32% in March.
“Central banks have succeeded in reinflating economies, but investors are split on whether they have stimulated real economic growth,” Gary Baker, head of European equities strategy at Bank of America Merrill Lynch Global Research, said in the report.
Michael Hartnett, the firm’s chief global equity strategist, said that “investors are reluctantly overweight equities. The combination of zero [percent] rates and rising inflation makes them fearful of bonds and cash.”
The poll also showed the Japanese crisis’s impact on fund-manager sentiment.
Domestic Japanese managers are evenly split between those who believe the economy will grow and those who think it won’t. Internationally, managers cut exposure to Japanese stocks.
“A net 18% of asset allocators are underweight Japanese equities this month, compared with a net 8% overweight in March. One in six respondents is ‘aggressively underweight’ ” in Japan positions, though one-third of the panel remains neutral, the report said.
The poll showed suggested further selling of Japanese equities.
“A net 16% of the panel says that Japan is the region in which they are most likely to take underweight positions,” the report showed.
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