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Fund managers coming out of defensive positions

GLOBAL – Fund managers across the globe are becoming more positive about the economy and are moving out of defensive investments, according to the monthly survey by Merrill Lynch.

In a July survey of 300 fund managers 47% said they were expecting slight higher interest rates over the next 12 months – a 12% increase since the June survey. 85% of managers surveyed also said the global economy will be stronger in a year’s time.

As a result of this new-found optimism, fund managers have been positioning themselves for a recovery. Says David Bowers, chief investment strategist at Merrill Lynch: “Fund managers are getting out of defensive stocks such as consumer staples and utilities, and are taking positions in technology, media and other cyclical assets.” In the shift away from defensive assets, fund managers are also moving away from bonds into equities, and out of UK equities into Japanese equities. Fund managers are not overweight in less defensive assets, however, indicating a degree of caution.

A reduction in cash since May is also apparent, suggesting that many fund managers have already positioned themselves for recovery. Bowers feels this is a little worrying. “The question is, are the signs there for a real organic recovery?” he says. “Although credit spreads indicate a recovery, and that companies have paid off their debt, this is not necessarily so. Furthermore, pricing power is not there yet.”

Euro-zone investors are more cautious. While optimistic, they are not wildly so, and though they believe the economy to be robust, there has not been such a dramatic adopting of a cyclical stance. Investors have moved underweight in staples, but instead have moved into financials.

In terms of regions, Spain and Germany are the two countries attracting most attention. A net 20% would go overweight in Spanish equities if forced to choose one country, an a net 12% in German equities. Fund managers would go underweight in UK and Swiss equities.

Merrill Lynch’s next fund manager survey will be released 12 August.
Helen Avery


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