Fund managers look beyond pension woe – Merrill

GLOBAL - More fund managers want corporate profits to go towards paying higher dividends than to topping up company pension schemes and repaying debts, according to David Bowers, Merrill Lynch’s chief global strategist.

Of the 273 managers polled in this month’s Merrill Lynch fund manager, 29% said that cash should be returned to shareholders, Bowers said. The figure is an increase of five percentage points since January.

Improving balance sheets is a priority for 21% of fund managers, compared with 28% of January.

Increasing capital expenditure, although weaker by one percentage point since January and three points since March, is still wanted by 40% of respondents.

Last month’s survey found that returning money to investors and improving balance sheets rated 23% each. Merrill described this month’s change in attitude as “significant”.

Comparing the present situation with one year ago, Bowers said: “Investors want their money back. I do not want to make too much of this but it is a quite interesting change in how people see the world.”

Among the survey’s highlights illustrated by Bowers, was the ‘tension’ between plummeting growth expectations and increasing worry about higher inflation.

According to the survey, the percentage of managers expecting a stronger economy in a year’s time fell from 74% three months ago to a current 34%. Only 47% of the fund managers expect profits to be higher, 24 percentage points down since January.

Fund managers, Bowers said, are not positioning themselves for a global recession, but rather for a ‘mid-cycle pause’.

Despite caution on growth, fund managers are increasingly concerned about global core inflation, with 78% of the panel saying it will be higher in a year. As a result, 75% see bonds as over-valued. “That’s the highest net balance that the survey has recorded in nine years,” Merrill said.

Risk appetite, however, remains ‘surprisingly high’, with one in five managers admitting to a higher than normal risk appetite.

The country where the equity market managers would most like to buy - and the one with the most favourable corporate profit outlook - was Japan. The market was “is in love with Japanese equities”.

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