Every month, BofA Merrill Lynch investment strategists survey 180 fund managers around the globe, who are responsible for a collective $US516 billion in assets under management.
The bottom line of the August survey, according to BAML chief investment strategist Michael Hartnett: Buy the “Crash Test Dummies.”
“In our view, the summer decline in bonds, [emerging markets] & gold (the first of a likely series of “QE crashes”) has created short-term trading buy opportunities in these now very unloved assets,” says Hartnett. “In contrast, [strong-dollar] plays (U.S./U.K. stocks, banks, discretionary) now appear relatively over-owned and likely underperformers near-term.”
In a note to clients, Hartnett gives a big-picture overview of what fund managers are thinking these days:
Most are bullish on global growth…
Net 72% expect stronger global economy, most bullish growth consensus since December ’09, as Eurozone optimism reaches 9-year high and China expectations bounce.
…rotation to Cyclicals, but still short Resources
Increased exposure to Banks and short-covering in Materials, funded by reduced exposure to the Utility sector. Tech the world’s sector and investors appear convinced that U.S.-housing is likely to outperform China-housing (Chart 1).
Most are bearish on Bonds…Treasuries likely to rally
A remarkably low 3% of investors expect long-term bond yields to be lower in 12 months; no surprise asset allocation exposure to bonds at a 28-month low; fixed income concerns may explain why cash levels are still-high at 4.5%.
Most are avoiding Emerging Markets…EM likely to rally
3rd largest [overweight] of U.S. equities in 10-years as U.S. [dollar] optimism remains very high; highest exposure to U.K. & Eurozone stocks since December ’02 & January ’08 respectively; contrarians should note decline in EM equity exposure to lowest since November ’01.
The best August contrarian trades are…
…long EM, short U.S.; long Gold, short [the dollar]; long Bonds, short Nasdaq; long Utilities, short Banks.
Many of these trades are the opposite of what BAML has been advocating clients should be doing on a longer-term basis.
For example, the bank has been bearish on Treasuries, and they expect a “Great Rotation” out of the asset class in the coming years. Meanwhile, the bank has also written extensively about the rise of the dollar and its expected resurgence over a similar timeframe.
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