February saw a rotation towards capital preservation assets – not just cash; but utilities, bonds and telcos and a move away from banks and equities in general, as the average equity overweight position reduced from 21% to 5%.
The February BAML Fund Manager Survey was conducted between 5-11 February 2016, with a total 165 respondents answering the global survey, responsible for $492bn (£344.4bn, €439.4bn) under management.
Flight to safety
Within the equity space, global fund managers demonstrated a capitulation in momentum stocks, showing a flight to safety as they turned towards large-cap, quality and higher-yielding names.
“Investors have ‘reset’ expectations for macro and markets lower and see default or recession as a risk rather than a reality.”
A net 64% of managers said they expected high-quality stocks to outperform low quality, while net 58% said large cap would outperform small cap.
A further net 57% of respondents expect high dividend to deliver better returns than low dividend payers.
Monthly repositioning also showed a paring back of the extreme underweight to emerging market equities as well as trimming financials, European and Japanese names, healthcare and discretionary.
Negative expectations
Both growth and profit expectations are negative for the first time since July 2012.
As a US recession overtakes the slowdown in China as the biggest tail risk for global investors, 90% of respondents said they expected two rate hikes from the Federal Reserve during 2016 – almost double last year’s figure when 40% said they thought the Fed would hike twice or more.
With 19% of fund managers believing a recession is likely in the next 12 months – up from 12% on the previous month, net 28% of investors think global fiscal policy is currently too restrictive – its highest level since 2012.
That said, expectations over Chinese growth are at their lowest levels since December 2008.
Michael Hartnett, chief investment strategist at BAML, said: “Investors have ‘reset’ expectations for macro and markets lower and see default or recession as a risk rather than a reality.”
