BofA Merrill Lynch Fund Manager Survey Finds Investors Taking ‘Risk-off’ Stance Amid Interest Rate and Grexit Concerns

Proportion of Investors Buying Protection Against Equity Sell-off Reaches Survey High

Global investors have moved out of equities into cash ahead of an expected U.S. Fed rate hike, according to June’s BofA Merrill Lynch Fund Manager Survey (FMS). Investors have also shown concern about a Greek default and a possible bubble in Chinese equities as they have scaled back risk.

• Cash levels rise to 4.9 percent of portfolios, up from 4.5 percent in May; the proportion of investors overweight equities falls to net 38 percent from 47 percent.
• Expectations of higher rates are the highest since May 2011, with a net 80 percent of the panel forecasting a rise in short-term rates.
• The majority of the FMS panel sees a negative resolution of Greece talks: 15 percent predict Grexit, and 42 percent predict default without exit.
• China worries: seven out of 10 investors say China’s equity market is in a “bubble.” A net 50 percent see China’s economy weakening.
• The proportion of investors expecting to underweight global emerging markets surges to a net 21 percent from net 6 percent in May.
• Corporate operating margins will fall in the coming 12 months, say a net 17 percent of investors – up from net 5 percent in May.
• The U.S. dollar is the most crowded trade as Fed tightening looms; 72 percent predict the euro will weaken vs. the dollar in coming year.

“Higher cash levels show how caution is in the air, with 65 trading days until we expect the Fed to tighten,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.

“Investors remain bullish on European equities but are increasingly concerned about Greece and higher yields,” said James Barty, head of European equity strategy.

Fund Manager Survey
An overall total of 207 panelists with US$562 billion of assets under management participated in the survey from 5 June to 11 June 2015. A total of 167 managers, managing US$437 billion, participated in the global survey. A total of 94 managers, managing US$211 billion, participated in the regional surveys. The survey was conducted by BofA Merrill Lynch Global Research with the help of market research company TNS. Through its international network in more than 50 countries, TNS provides market information services in over 80 countries to national and multi-national organizations. It is ranked as the fourth-largest market information group in the world.

BofA Merrill Lynch Global Research
The BofA Merrill Lynch Global Research franchise covers over 3,400 stocks and 1,100 credits globally and ranks in the top tier in many external surveys. Most recently, the group was named Top Global Research Firm of 2014 by Institutional Investor magazine; No. 1 in the 2015 Institutional Investor All-Europe Fixed Income Research survey; No. 1 in the 2014 Institutional Investor All-Europe survey; No. 1 in the Institutional Investor 2015 Emerging EMEA Survey; No. 2 in the 2015 Institutional Investor All-Asia survey; and No. 2 in the 2014 Institutional Investor All-America survey. The group was also named No. 2 in the 2015 All-China survey and No. 2 in the 2014 All-America Fixed Income survey for the third consecutive year.

Bank of America
Bank of America is one of the world’s largest financial institutions, serving individual consumers, small and middle-market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk management products and services. The company provides unmatched convenience in the United States, serving approximately 48 million consumer and small business relationships with approximately 4,800 retail financial centers and approximately 15,900 ATMs and award-winning online banking with 31 million active users and approximately 17 million mobile users. Bank of America is among the world’s leading wealth management companies and is a global leader in corporate and investment banking and trading across a broad range of asset classes, serving corporations, governments, institutions and individuals around the world. Bank of America offers industry-leading support to approximately 3 million small business owners through a suite of innovative, easy-to-use online products and services. The company serves clients through operations in all 50 states, the District of Columbia, the U.S. Virgin Islands, Puerto Rico and more than 35 countries. Bank of America Corporation stock (NYSE: BAC) is listed on the New York Stock Exchange.

Bank of America Merrill Lynch is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated, which is a registered broker-dealer and a member of FINRA and SIPC, and, in other jurisdictions, locally registered entities. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured * May Lose Value * Are Not Bank Guaranteed.