Investors turn away from cash to bet on riskier equities

Marco Green
November 15, 2017

Fund managers are showing signs of "irrational exuberance" by increasing their overweight global equities positions, decreasing cash and reducing underweight positions in United Kingdom equities, according to the latest Bank of America Merrill Lynch (BofAML) survey.

At the same time, a record net 16% of investors said they are taking above-normal levels of risk in their investment, despite the fact that a record high net 48% of investors surveyed thought that equities were now overvalued. Investors are also taking out less downside protection and holding less cash, the survey shows.

"Icarus is flying ever closer to the Sun", Michael Hartnett, chief investment strategist at the bank said. "And investors' risk-taking has hit an all-time high". Even after a $5 trillion gain in US stocks over the past year, a net 49 percent said they are overweight, the highest level since April 2015. The survey notes a mini rotation out of banks, though investors remain overweight the sector, in favor of laggard energy names and Japanese equities.

Indeed, according to the latest FMS average cash balances fell from 4.7% in October to 4.4% in November - their lowest level since October 2013 - as asset managers chased markets higher.

A net 16% of managers said they were taking above-normal levels of risk in their portfolios, a record high since Bank of America Merrill Lynch first began surveying manager risk-taking in 2001.

The flight from cash came despite investors seeing markets as being...

On the other side of the ledger, pessimism towards United Kingdom shares was again at lows seen during the last financial crisis, at a net 37% "underweight", the FMS revealed.

"Investors continue to see Japan equities as undervalued relative to other markets and say they want to overweight Japan for the next 12 months".

Other reports by Click Lancashire

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