Between early February to early March investors upped their allocation to commodities at the fastest pace on record, switched into industrial, resource and emerging market stocks, bought high-yield corporate debt and continued to pile into real estate assets at near unprecedented levels. Cash balances, while still relatively high, were also run down, suggesting a moderation in skittish investor sentiment.
That’s just a few of the details to come from the latest Bank of America-Merrill Lynch (BAML) global fund manager survey for March with findings suggesting that many contrarian investors would have benefited from skewed one-way positioning in many risk asset classes and, as was seen in recent weeks, a wave of short covering from investors.
Aside from the fact that the global fund manager survey contains a treasure trove of information on the mindset of investment managers, the sheer size of the survey, let alone the dollar value of the funds these investors manage, gives this report a serious degree of clout among the broader investor community.
209 panellists with a combined US$591 billion of funds under management speaks for itself.
Here’s just a few of the excellent and informative charts to come from the March survey, along with a brief explanation as to what it means for you, the investor.
Here’s the percentage change in asset allocation made by fund managers between the February and March surveys. BAML notes that managers increased their exposure to industrials, commodities, energy, materials & emerging markets, but reduced weighting to consumer staples, cash, Japan and utilities.
And here’s current their current positioning in asset classes, as opposed to history. BAML suggests that contrarians would go long energy, materials, the euro, emerging markets and UK, but short real estate, consumer discretionary, tech stocks and Eurozone based on extreme positioning.
These are the trades that fund managers believe are the “most crowded”, essentially where positioning is so skewed in one direction that they could be prone to future reversals. While this indicates that the moves seen in recent weeks could continue, it also suggests that many have already acted upon the build up in extreme positioning.
Outside of asset markets, some of the other findings from the survey include 86% of managers think that the US Federal Reserve will hikes rates two time or less in 2016, well below the FOMC’s last assessment of four offered in December 2015, a net 11% think that the global economy will improve this year, up from a net 16% who thought it would deteriorate in February, while 59% think that the global economy is in the latter stages of its economic upswing, the highest level seen since August 2008.
The latter, in particular, is somewhat ominous given what happened to the global economy in the period following that date.