Fund managers most bullish on equities since Feb 2011: BofA-ML survey

A total of 228 panellists with $674 billion of assets under management participated in the survey

Fund managers are bullish on the road ahead for equities in the second half of 2014, according to a recent Bank of America Merrill Lynch (BofA-ML) survey for July, with a net 61% of global asset allocators being overweight equities. This ranks as the survey's panel's second-strongest response ever. Only in February 2011 did the reading at 67% was higher.

"This aggressive positioning for recovery in H2 reflects a significant increase in investors' inflation expectations. A net 71% expect global core CPI (consumer price inflation) to be higher in 12 months, up 13 percentage points since last month. This marks a cyclical high for the survey. Exposure to commodities, an asset class especially sensitive to inflation, has risen to its strongest in more than a year," findings suggest.

A net 26% of investors are over-weight (OW) Japan equities, highest allocation in five months while the allocation to euro-zone equities dropped in July to a net 35% OW from net 43% OW last month. A net 8% of investors are under-weight (UW) UK equities, down from net 4% UW in June.

On the other hand, EM equities are under-owned relative to history, BofA-ML says, and are still perceived as most undervalued in 13 years. With a country preference of around 80%, India remained the top pick for GEM (global emerging markets) investors' country preferences in the July survey (up from around 50% in June) followed by Russia, China and Mexico.

A total of 228 panellists with $674 billion of assets under management (AUM) participated in the survey conducted by BofA Merrill Lynch Global Research between July 3 - 10, 2014 with the help of market research company TNS.

Capex

Fund managers also feel that the companies are under-investing. For the seventh month in a row, investors' call for companies to invest more in capital spending has again reached a record high of 65% and is mirrored by a record net 71% judging that companies are under-investing - the highest reading since the survey began asking this question in 2005.

Conversely, those wanting companies to return surplus cash are at their lowest level in five years with only 18% of fund managers wanting companies to institute buybacks or dividend payments - or to make acquisitions for cash.

"Improving investor sentiment on global growth, inflation, equities and risk-taking are all testament to potential macro normalisation in the second half. This could eventually feed into a normalisation of rates. If growth does pick up, volatility will rise too," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Research.