BofA Merrill Lynch’s European fund manager survey for January found that the majority of those surveyed expected equities to peak in 2018, with close to half citing Q2 or Q3 as the likely tipping point, while 30% expected the peak in 2019 or beyond.
Over one-third saw US treasuries as the asset class most likely to be the source of a global cross asset crash, and a bond sell-off and/or inflation continued to be at the centre of investor thinking when considering perceived catalysts for deterioration in markets.
The survey found that while the US remained out of favour, sentiment was slowly changing as 17 percentage points (ppts) more respondents said they would be underweight the US region than overweight in the latest survey in January compared with 40 ppts more in June 2017.
The UK however, continued to be deeply out of consensus and fell to a new record low of 39 ppts more respondents holding a negative view on the region.
Europe, emerging markets, and Japan were the regions the respondents to the survey said they would most likely be overweight.
“Germany is the most popular (+42ppts) and the allocation to Spain increased on the month. Both France and Italy suffered a decrease in allocations,” the survey found.
European fund managers had oil and banks leading the sector rankings, both at 31 ppts more respondents favouring these sectors, and they were also viewed as the most undervalued sectors in Europe. The two sectors were followed by tech, construction, and industrials.
“Defensives and bond proxy type sectors are generally out of favour, with food and beverage, utilities, real estate, and healthcare all underweights to a greater or lesser extent,” the survey found.
BofA Merrill Lynch said European utilities were the least popular sector despite a sizable improvement in allocation (up 14 to a negative 33 ppts).
The bank’s January global fund manager survey found that global investors remained positively exposed to European equities and their overweight in the eurozone remained higher than any other region.
Similarly to European investors, the global allocation to UK equity remained depressed and was close to historical lows.
The survey was done between 5 and 11 January this year and gathered responses from 213 institutions with $591bn of assets under management.
A total of 183 participants responded to the global fund manager survey questions and 94 participated in the regional fund manager survey.
