Investors have raised equity allocations to the highest level in 2 1/2 years after turning skeptical of bonds, and prefer euro-area shares to American stocks, a Bank of America Corp. survey showed.
A net 60 percent of 172 global fund managers, who together oversee about $518 billion, were overweight on stocks, the highest level since February 2011, according to the survey. Three out of four investors said they believed bond yields will be higher in 12 months.
“This is much more about investors being fearful about bonds than them lacking faith in equities,” John Bilton, European investment strategist at Merrill Lynch, said at a press conference in London today. Exposure to bonds fell to its lowest level since April 2006, with 68 percent of investors underweight, the survey found.
“Our whole theme of the great rotation suggests that we are in multi-quarter, if not multi-year, move from bonds to stocks,” Bilton said. “Equity-risk premium, the valuation assumptions about equities generally, the gradually improving economy and clearly the pickup in inflation expectations which are at two and a half year highs would tend to favor the equity complex over the bond complex.”
Allocations to U.S. equities fell sharply to the lowest level in seven months, retreating to 9 percent overweight from 32 percent in August, the BofA survey found.
“In our view, tapering fears have spurred on the September rotation from U.S. to the euro zone and U.K.,” Michael Hartnett, the New York-based chief investment strategist at Bank of America’s Merrill Lynch unit, wrote in the report to investors today.
Investor exposure to U.K. equities has increased to 12 percent overweight, the highest level in almost 11 years, the survey found. “The U.K. is a lower beta market and viewed as a quality or defensive play in Europe,” Hartnett wrote.
Allocations to euro-zone stocks rose to 36 percent overweight, the highest level since September 2007, with euro-zone equities becoming the most preferred region globally for the first time in six years, according to the BofA survey.
The global survey was conducted from September 6 to September 12.