Merrill Lynch(ed): Global Fund Manager Survey

Bank of America Merrill Lynch published their monthly Global Fund Manager Survey yesterday. "The picture" looked like this in September. Key conclusions from the new October survey:

Bullish on equities, but no euphoria
The October FMS shows equities remain in a sweet spot: investors believe double-dip risks are receding, inflation is distant and risk appetite is rising (to +44 from +40). But bullishness is still not euphoric: the equity overweight (+38%) is below
danger levels (+50-55%), hedge fund’s net exposure remains low and investors
remain stubbornly underweight global banks.

New highs for profit expectations
Two-thirds of investors view a double-dip recession as unlikely (vs. 47% last
month). But two thirds also expect growth and inflation to be "below-trend". With
inflation and interest rates low, a net 72% expect higher corporate profits, the
most bullish reading on profits since December 2003.

Cash has left the building
The lack of a September correction (and perhaps also large corporate issuance) has forced investors to sharply cut cash balances from 4.1% in September to 3.7% in October. Asset allocators cut cash to 7% UW, the lowest cash allocation in 5 years. This benefited equities: the net % OW rose from 27% to +38%.

Europe rising from the ashes
Investors remain OW Emerging Markets. But Europe is the favoured developed market. 11% of asset allocators are OW, a massive shift from -40% in March. A
net 30% of global PMs view EU as the most undervalued region. In contrast,
panellists are giving up on Japan fuelled by perception of ¥ overvaluation.

Investors are still UW global banks
Despite strong performance in recent months investors turned more bearish on
global banks in October. Technology remains the favoured global sector; while
positioning in energy, industrials and materials all increased at the expense of
consumer sectors, with discretionary now the least loved global sector.

Dollar sentiment cracks but yet to plumb '08 lows
A net 20% of investors see the $ as undervalued, a sharp drop from September
but a long way from the 50% undervalued readings of spring 2008. In contrast
readings on yen overvaluation are extreme by historic standards and suggest
Bank of Japan currency intervention would have some success.

Pain trades galore
For uber-contrarians the October FMS offers the following trades: long T-bills,
short EM equities; long Japan, short EM or EU equities; long consumer disc.,
short materials; long utilities, short tech; long UK, short EU equities.

I was looking for the microscope to see all those trillions of cash on sidelines. Well, if seriously, there should be no less cash on sidelines even if equities are 20% higher, except the case we see heavy new issuance.