Mixed outlook among global fund managers

May 17, 2018
Low expectation on growth but no recession until 2020

The latest findings from the BofA Merrill Lynch May Fund Manager Survey reveal a mixed outlook from global fund managers.

Expectations for faster global growth continue to fall, with just 1 percent of investors indicating they think the global economy will strengthen over the next 12 months – the lowest level since February 2016.

The average cash balance is down to 4.9 percent from 5 percent last month, but is still above the 10-year average of 4.5 percent – an indication of uncertainty.

That said, the survey reveals that only 2 percent of investors expect a recession this year: the consensus is for recession in the first quarter of 2020, though investors are split between 2019 (41 percent) and 2020 (43 percent).

Higher inflation remains the consensus view, with 79 percent of investors surveyed expecting the US core consumer price index to rise over the next 12 months.

The threat of a Fed/European Central Bank hawkish policy mistake returns to the top of the list of biggest tail risks to the global market for 30 percent of fund managers, as trade war concerns ease to be the top concern for just 25 percent.

Summing up this mixed picture, Michael Hartnett, chief investment strategist at BofA Merrill Lynch, says in a statement: ‘This month’s survey presents good and bad news. Although cash levels remain high and growth optimism is at its lowest level in more than two years, a majority of investors say there is room to grow in this equity bull market and don’t see signs of recession anytime soon.

‘Fund managers think the May rally can extend in the near term.’

Global investors also reveal that they favor banks, tech and energy, while avoiding staples, telecoms and utilities.

In a new section in the survey on exchange-traded funds (ETFs), 53 percent of respondents say they actively use them in their portfolio, with ETF investing remaining a predominantly equity-focused activity for fund managers.

Seventy-seven percent of survey participants indicate they use ETFs to gain equity market exposure, compared with just 8 percent for corporate bonds and 5 percent for government bonds.

The survey attracted 223 fund manager respondents with a total of $643 bn in assets under management.

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