Global investors swarmed back into U.S. equities in June, Bank of America Merrill Lynch reported this week.
Merrill's latest fund manager survey found that U.S. equity allocations shot up 16 percentage points from May to net 1% overweight. This was the first time survey respondents had gone overweight in 15 months.
In contrast, the eurozone lost its position as the most-favored region for equities, dropping 13 points to an 18-month low of 20% overweight — the biggest drop since the July 2016 Brexit vote.
Emerging market equities fell again in June after last month's massive sell-off, to net 22% overweight, as investors reallocated to U.S. equities.
"Investors have their eyes on the U.S. this month, with a record high favorable outlook for profits and a return to U.S. equity allocation," Merrill's chief investments strategist Michael Hartnett said in a statement. "Decoupling is back in vogue."
The survey, conducted June 1 to June 7, comprised 235 panelists with $684 billion in assets under management.
Fund managers' average cash balance ticked down to 4.8% in June from the previous month's 4.9%, still above the 10-year average of 4.5%.
The fund manager cash rule holds that when average cash balance rises above 4.5%, a contrarian buy signal is generated for equities; when the cash balance falls below 3.5%, a contrarian sell signal is generated.
Sixty-four percent of survey respondents, a 17-year high, said the U.S. had the most favorable outlook for profits, whereas all other regions had a negative one.
At the same time, a record 42% of investors said companies were overleveraged, way above the 32% peak in 2008.
Long FAANG (Facebook, Apple, Amazon, Netflix and Google's parent Alphabet) + BAT (Baidu, Alibaba and Tencent) continued as the most crowded trade in June, identified by 41% of investors, up from 29% in May.
Sixteen percent of respondents cited short U.S. Treasuries and 9% long U.S. dollar.
In June, allocation to commodities hit an eight-year high, rising one percentage point to net 7% overweight, the highest since April 2012 when West Texas Intermediate was $105 a barrel.
