Abet Chichi2

[DiscoverGold]

Fund Managers' Current Asset Allocation - March
By Urban Carmel | March 22, 2017

Summary: A tailwind for the rally over the past year has been the bearish positioning of investors, with fund managers persistently shunning equities in exchange for holding cash.

Sentiment has turned bullish. Optimism towards the economy has surged to a 2-year high and profit expectations are near a 7-year high. As a result, global allocations to equities rose to a 2-year high in March and "risk appetite" is also at a 2-year high. All of this suggests the big tailwind for equities has now dissipated. The one remaining positive is the high cash balance at funds.

Europe and Japan are now the most overweighted equity markets on a relative basis. Allocations to the US have dropped as the region has underperformed so far in 2017; this is where US equities typically start to outperform again. The weighting towards emerging markets has jumped in the past two months; this is now back to where the last two rallies in that region have started to fade.

Findings in the bond market are still of greatest interest. Inflation expectations are at 13-year highs, a level at which yields have reversed lower in the past. Fund managers' allocations to global bonds fell to a more than 3-year low in March, a level which has often marked a point of capitulation.

For the fourth month in a row, the dollar is considered the most overvalued in the past 11 years. Under similar conditions, the dollar has fallen in value in the month(s) ahead.

* * *

Among the various ways of measuring investor sentiment, the BAML survey of global fund managers is one of the better as the results reflect how managers are allocated in various asset classes. These managers oversee a combined $600b in assets.

The data should be viewed mostly from a contrarian perspective; that is, when equities fall in price, allocations to cash go higher and allocations to equities go lower as investors become bearish, setting up a buy signal. When prices rise, the opposite occurs, setting up a sell signal. We did a recap of this pattern in December 2014 (post).

Let's review the highlights from the past month.

Cash: Fund managers' cash levels dropped from 5.8% in October 2016 to 4.8% in March. Recall that 5.8% was the highest cash level since November 2001. Cash remained above 5% for almost all of 2016, the longest stretch of elevated cash in the survey's history. Some of the tailwind behind the rally is now gone but cash is still supportive of further gains in equities. A significant further drop in cash in the month ahead, however, would be bearish. Enlarge any image by clicking on it. . .



* * *

http://fat-pitch.blogspot.com/2017/03/fund-managers-current-asset-allocation.html

• DiscoverGold

Click on "In reply to", for Authors past commentaries