Fund manager pessimism has eased but investors remain wary, according to Bank of America’s (BofA) latest monthly fund manager survey.
The survey indicates risk aversion has peaked and is coming down. Cash levels have fallen from 6.2 to 5.9 per cent and BofA’s Financial Market Stability Risks Indicator has eased from 8.5 to 5.6, suggesting a “turning point for risk aversion”.
Equity allocations are the highest since June. The percentage of investors taking lower-than-normal risk levels has fallen sharply and is now the lowest since April.
Nevertheless, cautions still abounds. A large majority still view monetary risk as higher than normal. Although cash levels have fallen, they remain much higher than usual. Similarly, equity allocations remain almost two standard deviations below long-term norms. Importantly, investors are more underweight stocks relative to bonds than at any time since April 2009.
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Indices may have climbed since October but risk appetite is low and allocations are still defensive. With bearish sentiment being a contrarian indicator, BofA says the “pain trade” is for stocks to rally.
