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And the overwhelming theme of the latest BofA Merrill Lynch fund managers survey is…
Complacency.
From record equity and commodity overweights…
Equities & Commodities Rule Asset allocation is straightforward and extreme: equity surges to a record O/W of 67%; commodities also at record O/W of 28%; bond allocation tumbles to -66%, lowest since April'06 and close to a record low.
…to record high positioning in tech stocks:
Record Optimism on Tech Positioning in tech stocks rose to a record high of 51%; U/W in global banks was slashed from -21% to -7%; defensive sectors saw a reduction in positions in Feb, with pharma and staples cut the most
… and a big switch into developed markets:
Capitulation in Emerging Markets Massive regional rotation: exposure to EM collapsed from 43% to 5%, the lowest level since March'09; surge in exposure to US equities (34% = second highest in past 10 years) and Eurozone (-9% to 11%).
… because of bullish growth forecasts:
Consensus remains bullish on growth: just 13% expect global economy to weaken in the next 12 months. Two out of three investors forecast double-digit profit growth over the same period, despite expectations of falling profit margins.
The world’s big money managers are raging bulls.
So much so, that Merrill reckons they are…
Cruising for a Bruising The February FMS is one of the most bullish in years. Institutions have record equity and commodity overweights, very low cash levels and the strongest risk appetite since Jan"?06. Surging inflation expectations show we are no longer in a Goldilocks environment and a meaningful tactical correction in risk assets could be caused by a jump in interest rates or weaker US growth.
The FMS Risk Appetite Index rose to its highest level (47) since Jan"?06. Hedge fund net exposure rose to 39%, highest since July'07. Cash balances fell from 3.7% to 3.5%, triggering our FMS cash trading rule equity sell signal
Crikey.
Time think about some contrarian trades therefore.
Merrill suggests long bond, short equities; long dollar, short commodities; long Japan & EM, short US equities.
Long EM it is, then.
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