Profit expectations are rising, rate expectations are lower and cash levels are falling, yet global fund managers' allocations to equities continue to fall, Bank of America Merrill Lynch reported Tuesday.
"The pain trade for stocks is still up," Merrill's chief investment strategist Michael Hartnett said in a statement on the release of the firm's March fund manager survey. "There is simply no greed to sell in equities."
Merrill conducted the survey during the second week in March among 239 panelists with a total of $664 billion in assets under management.
Allocation to global equities fell to net 3% overweight, down from 6% overweight last month, the lowest level since September 2016 and way off the 31% overweight as recently as November, according to the survey. Investors, Merrill said, have turned skittish on equities even though global stocks have returned 12% year to date.
Net 30% of hedge fund investors in the survey reported that they were net long equities, the lowest level since December 2016. Merrill said equity allocation has been negative only once in the past six years.
Investors' allocation to cash dropped to net 40% overweight, down four percentage points from February's 10-year high. Their average cash balance fell 0.2 points to 4.6% in March, indicating improved risk appetite.
Merrill noted that the fund manager cash rule has been in "buy" territory for 12 months. This 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.
