A September Bank of America Merrill Lynch survey of fund managers showed equity allocations haven’t been this high in 29 months. Cash balances, however, remain elevated, which is a “contrarian buy signal” according to the report. Equity allocations increased to 60% overweight in September from the prior month’s 56%, according to the survey.
A overall total of 236 panelists with $689 billion of assets under management participated in the survey from 6 September to 12 September 2013. The survey was conducted by BofA Merrill Lynch Research with the help of market research company TNS.
The table below shows September 2013 global asset class positioning relative to history:
Here are some of the take-aways:
Investors are long assets tied to the U.S. real estate market and macro “normalization.” The latter includes equities, developed markets cyclicals and banks.
Assets tied to China, such as emerging markets and commodities — pared back for the third straight month — and the era of zero rates, such as bonds and defensives are “very much out of vogue,” says BofA Merrill Lynch’s chief investment strategist Michael Hartnett.
Importantly, cash levels remain “exceptionally high,” says Hartnett, with the average cash balance at 4.6%, up from 4.5% last month. And here’s where he remind us of the FMS Cash Rule: when the cash level is higher than 4.5%, a contrarian buy signal is generated for equities, and when it’s below 3.5%, that’s a contrarian sell signal.
The summer bond crash has triggered some record allocations across the board, he says. Those include:
- the biggest exposure to consumer staples in seven years
- the biggest exposure to industrials in 10 years
- a 6-year high for eurozone stock exposure
- an 11-year high for U.K. equities exposure.