The concern over Spain’s sovereign debt in recent weeks and renewed eurozone jitters have caused investors to scale back both risk-taking and their expectations for global growth, according to a Bank of America Merrill Lynch (BofA Merrill) Survey of Fund Managers in April.
The fund manager survey shows increased hoarding of cash from March onwards with a net 24% of global asset allocators overweight cash in April, compared to just 6% last month. Average cash balances rose to 4.7% of global portfolios, an increase from 4.2% in March.
A net 26% of asset allocators are overweight equities, down from a net 33% in March. Investors have increased allocations to pharmaceuticals, a counter-cyclical sector which is targeted when fears of recession arise, while reducing positions in materials, a traditionally cyclical sector that is obviously adversely impacted by low growth worries.
Concerns over European state finances have also risen sharply, revealed the BofA Merrill survey, which questioned 256 fund managers from 5-12 April 2012 who control US$706bn of assets. The majority of the panel, 54% said that EU sovereign debt funding is the number one tail risk, up from a 38% in March. A net 63% of the panel predicts that Spain is likely to provide a negative surprise in 2012, up from a net 50% last month, which recent trading on financial markets bears out.
The survey was conducted by BofA Merrill Research with the help of market research company TNS. It also questioned 191 global managers, managing US$554bn, and a regional survey element spoke to 137 managers with US$317bn under investment.
“Investors have moved to a more neutral position after positive shifts in sentiment and risk taking in the first quarter,” said Michael Hartnett, chief global equity strategist at BofA Merrill Lynch Global Research. “We believe investors will retain a sense of caution throughout the second quarter.”
According to Gary Baker, head of European equities strategy at BofA Merrill Global Research: “The survey also highlights that while investors’ primary concern in the EU is Spain’s economy, the outcome of, and uncertainty around, France’s elections is also figuring high in their decision-making.”
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