October 16, 2012
Reporters May Contact:
Rinat Rond, Bank of America, 1.646.855.3152
rinat.rond@bankofamerica.com
Tomos Rhys Edwards, Bank of America, +44.20.7995.2763
tomos.edwards@baml.com
BofA Merrill Lynch Fund Manager Survey Finds
U.S. Fiscal Cliff Dampens Rising Economic Optimism
Most Investors Believe Fiscal Cliff Is Not Yet Priced In To Equities
NEW YORK AND LONDON – While positive sentiment towards the global economy and
equities continues to repair, concerns are growing about the impact of the U.S. fiscal cliff,
according to the BofA Merrill Lynch Fund Manager Survey for October.
Nearly three quarters (72 percent) of global investors believe that the fiscal cliff is not
substantially priced into global equities and macroeconomic data. The fiscal cliff is identified
as the number one tail risk by 42 percent of respondents – up from 35 percent in September
and 26 percent in August. EU sovereign debt funding risk is seen as less of a threat. A net
27 percent of the panel see it as their number one risk, down from a net 33 percent a month
ago and far lower than the reading of 65 percent in June.
Investors have otherwise become more positive, building on growing sentiment since the
summer. A net 20 percent of investors now believe the global economy will strengthen in the
coming 12 months – a rise of three percentage points month on month. Concerns about the
outlook for corporate profits have eased noticeably. A net 11 percent of investors say
corporate profits will fall in the coming year, down from a net 28 percent in September.
However, expectations of a sharp bounce in earnings fell back with a net 58 percent saying
double digit earnings gains are unlikely in the next year, up from 55 percent in September.
Equity allocations rose significantly month-on-month. A net 24 percent of asset allocators are
overweight equities, up from a net 15 percent in September. Fund managers increased
allocations to seven of the 11 global sectors, including banks and industrials. Allocations to
the eurozone and global emerging markets increased, but allocations to Japan fell to a threeyear low.
“While the U.S. fiscal cliff is a hurdle, growing belief in the global economy could spur a more
‘risk on’ stance from investors,” said Michael Hartnett, chief investment strategist at BofA
Merrill Lynch Global Research.
“The outlook for European equities is improving, eurozone fears are receding and appear
largely priced into equity risk premia; core government bonds offer negative real yields so
the impetus to rotate into stocks in Europe, as the outlook stabilizes, is profound,” said John
Bilton, European investment strategist at BofA Merrill Lynch Global Research.
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Gap in popularity between U.S. and Europe disappears
Two months ago the gap in popularity between U.S. and European equities was substantial
– but now the two regions viewed equally in the eyes of allocators. October’s Fund Manager
Survey shows a net 10 percent of the panel is overweight in both regions. A market change
from August when a net 13 percent of asset allocators were underweight Eurozone equities
vs. a net 13 percent overweight for the U.S.
Furthermore, the outlook for the two regions is also identical. The U.S. and the eurozone
both receive a net 3 percent of investor votes for the region they would most like to
overweight over the coming year.
Japanese risk rising
Investors have become more bearish on Japan as concerns grow over a dispute with China
over the Senaku Islands and its impact on trade. A net 38 percent of global asset allocators
are underweight Japanese equities, the lowest reading since March 2009 and up from a net
23 percent a month ago. The outlook suggests no improvement. For the second consecutive
month a net 24 percent of investors say Japan is the region they most want to underweight.
Pessimism within Japan has risen acutely in the past month. A net 30 percent of the regional
panel believe the Japanese economy will weaken in the coming year, up 26 percentage
points since September. A net 22 percent expect Japanese earnings per share to decline, up
from a net 9 percent a month ago.
Sovereign bonds tipped to make way for ‘risk on ‘investments
As well as increasing equity allocations, investors are shifting towards higher risk sectors. A
net 7 percent of investors are overweight industrials, a highly cyclical sector, this month
compared with a net 8 percent underweight in September.
Riskier sectors such as Banks, Insurance and Materials also saw positive shifts. Within the
banking sector in particular, valuations have fallen sharply despite improving sentiment. A
net 18 percent of the panel believe Banks is the most undervalued sector, up from a net 11
percent in September and double the reading of the second most undervalued sector,
materials, at a net 9 percent.
This month, we asked investors for the first time what they would sell to fund the purchase of
high Beta equities. The number one pick (37 percent) was to sell government bonds. One
third of the panel believes investors will use cash and 19 percent opted for defensive
equities. Significantly, only 4 percent opted for corporate bonds as the asset class they
expect to be sold.
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Fund Manager Survey
An overall total of 269 panelists with US$734 billion of assets under management
participated in the survey from 5 October to 11 October. A total of 200 managers, managing
US$561 billion, participated in the global survey. A total of 149 managers, managing US$336
billion, participated in the regional surveys. The survey was conducted by BofA Merrill Lynch
Research with the help of market research company TNS. Through its international network
in more than 50 countries, TNS provides market information services in over 80 countries to
national and multi-national organizations. It is ranked as the fourth-largest market information
group in the world.
BofA Merrill Lynch Global Research
The BofA Merrill Lynch Global Research franchise covers more than 3,300 stocks and 1,060
credits globally and ranks in the top tier in many external surveys. Most recently, the group
was named Top Global Research Firm of 2011 by Institutional Investor magazine; No. 1 in
the 2012 Institutional Investor All-Asia survey for the second consecutive year; and No. 2 in
the 2012 Institutional Investor All-China, All-Europe, All-Japan and All-Latin America
surveys. The group was also named No. 2 in the 2012 Institutional Investor All-America
Fixed Income survey, as well as in the inaugural Institutional Investor Emerging Markets
Equity and Fixed Income survey, covering Emerging Europe, Middle East and Africa.
Additionally, BofA Merrill Lynch Global Research was named the No. 1 Global Broker by
Financial Times/StarMine, as well as ranking No. 1 in the U.S. and Europe and No. 2 in Asia.
The group was also named No. 1 in Asia and No. 2 in the U.S. in the Wall Street Journal
Best on the Street 2012 Analysts Surveys. The group was also the winner of the Emerging
Markets magazine’s EM Research Global Award for 2010 and 2011.
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