As global economic growth optimism continues to hit all time lows, cash levels have risen to their highest levels since 9/11, according to May’s Merrill Lynch Global Fund Manager survey.
The survey revealed a net 72% of global managers expect the global economy to weaken in the coming 12 months.
At the same time equities fell to their biggest net underweight since May 2020 – down from a net 6% overweight in April to a net 13% underweight in May – the average level of cash held by global managers hit its highest figure since 9 September 2001 (6.3%).
Set against a background in which a net 49% of managers said they are taking less risk than normal, the lowest figure since December 2008, allocations to Europe and emerging markets were reduced, while technology stocks saw their lowest exposure since August 2006.
Instead allocations to defensive assets rose, with utilities, staples and healthcare seeing their combined overweight jump from 28% in April to 43% in May.
With 58% of managers predicting oil will now produce the best returns in 2022, commodities also remained a popular sector, although the allocation to the sector did fall nine percentage points month-on-month to a net 29% overweight.
Focusing investments on ‘quality’ companies
According to David Coombs, head of multi asset investments at Rathbones, the pall of uncertainty over the future is leading him to ensure his portfolios are “ready for whatever jumps out of the gloom”.
“This year is looking like it will be a tough one for households, businesses and some governments,” he said. “Because of this, we are focusing our investments on ‘quality’ companies – those that have little debt, make a lot of cash and have products and services that are hard for clients to pass up.”
While being prepared for short-term pain, Coombs added there is still a chance of things turning out better than people are expecting right now.
“Prices in bond and stock markets suggest people are anticipating a royal flush of bad stuff,” he said.
“Yet the Citi Economic Surprise Index, which measures actual economic news against expectations, has risen sharply this year showing that so far, the reality hasn’t lived up to the nightmares.”
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