MNI:BOA Merrill Fund Survey:Mkt Risk On With 'Goldilocks' View

--Correction of Headline to be 'Risk On' in 10:10 am ET Main Wire story

--FAANG/Bitcoin Action Prompts 'Bull Capitulation'

--US EQ Sees Inflows, EZ EQ Outflows

By Vicki Schmelzer

     NEW YORK (MNI) - Global investors, while wary of recent stock gains to

record highs, threw in the towel and jumped into risk assets during November,

according to Bank of America Merrill Lynch's monthly fund managers survey,

released Tuesday. 

     Part of the enthusiasm for equities was driven by a "Goldilocks" view about

the world economy, where 56% of those polled (an eight percentage point jump

from last month) looked for above trend growth and below trend inflation. 

     In addition, the price action in the FAANG/BAT stock and Bitcoin led to

"bull capitulation," the survey said. 

     FMS cash holdings fell to 4.4% this month, below the 4.5% average of the

past 10 years. This is off recent highs of 4.9% in August and July, but well

below the October 2016 peak of 5.8%. 

     Current cash levels take "the FMS Cash Rule out of 'buy' territory for the

first time since Oct. 2013," the survey said. 

     Allocation to cash fell to a net 23% overweight in November, the lowest

since May 2017, and compared to a net 28% overweight in October and a net 33%

overweight in September. 

     On asset allocation, a net 49% of fund managers polled said they were

overweight global equities this month, the highest since April 2015. This

compared to a net 45% overweight in October and a net 34% overweight in

September, the survey said. 

     The "capitulation into risk," as typified by Hedge Fund net allocation to

equity markets, rose to an 11-year high of 47%, BOA Merrill Lynch noted. 

     A net 56% of managers were underweight bonds in November, versus a net 60%

underweight in October, which was the lowest allocation in seven months, and a

net 55% underweight in September. 

     This month, 5% of those polled said global interest rates would be lower in

the coming 12 months, versus 77% who said rates would rise. In October, the

survey showed that a net 3% of investors said global interest rates will be

lower in the coming 12 months versus a net 82% saying interest rates will rise. 

     In terms of regional equity allocation, the U.S. saw inflows and the

eurozone outflows.

     A net 16% of portfolio managers polled in November were underweight U.S.

stocks versus a net 21% underweight in October and a net 28% underweight in

September, which was the largest since November 2007, BOA Merrill Lynch noted. 

     In contrast, a net 47% of managers were overweight eurozone stocks in

November, versus a net 58% overweight in October, which was the highest in five

months. In September, a net 54% of managers were overweight eurozone stocks. 

     Global investors added modestly to their emerging market equity holdings in

November as views about global yields rising became more contained. 

     Allocation to emerging market equities stood at a net 43% overweight in

November versus a net 41% overweight in October, and a net 47% overweight in

September.

     In November, a net 32% of fund managers were overweight Japanese stocks,

back at levels last seen in 2014-2015. In October, a net 23% of fund managers

were overweight Japanese stocks versus a net 12% overweight in September.

     A net 37% of those polled were underweight UK equities in October, versus a

net 31% underweight in October and a net 35% in September and back at the same

allocation as in August. 

     The top "tail risks" in November were "Fed/ECB policy mistake," with a net

27% of portfolio mangers fearing this, followed by a net 22% concerned about a

"crash in global bond markets," and a net 13% who feared "'market structure'

causes" such as a "flash crash."

     The top tail risks in October were "Fed/ECB policy mistake," with 24% of

portfolio managers fearing such a "mistake", followed by 23% who fretted "North

Korea," and 22% a "crash in global bond markets. 

     On the "most crowded trades" this month, a net 34% of those polled said

"Long Nasdaq," a net 26% said "Short Volatility" and a net 18% said "Long

US/EU/EM NY Corp Bonds."

     For the "most crowded trades" in October, a net 29% of fund managers said

"Long Nasdaq," a net 18% said "Long US/EU Corporate Bonds, and a net 16% said

"Long Eurozone equities."

     On U.S. tax reform, a net 65% of fund manager in November said they expect

reform "to either not change the macro outlook or not be inflationary, while 35%

think it will lead to above trend growth and inflation."

     An overall total of 206 panelists, with $610 billion in assets under

management, participated in the BOA Merrill Lynch survey, taken Nov. 3 to 9. 

     "178 participants with $533bn AUM responded to the Global FMS questions and

87 participants with $201bn AUM responded to the Regional FMS questions." the

survey said.

--MNI New York Bureau; tel: +1 212-669-6438; email: vicki.schmelzer@marketnews.com

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