Bank of America Merrill Lynch global fund manager survey
______________________________________________________________________________
US equities the boldest contrarian trade right now
Fund managers worry US S&P 500 index is overvalued but history shows that may not be the case
The Short View
https://www.ft.com/content/0b6c1ca2-24f ... f7e0cd0a16
What is the boldest contrarian trade in the world right now? The answer, possibly surprising to some, is to invest in large US stocks. Supposedly “smart” money is now more convinced than at any time since the financial crisis that the US S&P 500 index is looking dangerously overvalued.
A survey this week of global fund managers responsible for investing $500bn of assets by Bank of America Merrill Lynch found that 83 per cent of respondents thought US stocks were overvalued, the highest number to hold this view since 2008.
Because of these fears, those managing this sizeable pool of cash have reduced exposure to the US stock market by 21 percentage points in April compared with March, ramping up positions in emerging markets and Europe instead. But is it really so obvious that US stocks are expensive? They certainly seem no bargain but financial bubbles do not tend to form when the majority of market participants are fearful.
Anyone tempted to doubt the collective wisdom of this wall of cash would do well to consider the following. The trailing earnings yield on the S&P 500 stands at about 4.6 per cent, according to Bloomberg data, nearly half the level that during the lows of the crisis. When inverted to a multiple, this works out at a price-to-earnings ratio of 21.5 times — a valuation many professionals fret is too high. Their logic is driven by the idea that when rates rise as expected this earnings yield will move higher and the value of equities will fall.
Yet history shows this is not always the case. In September 1992, the S&P 500 earnings yield touched a low of 3.7 per cent, with the US headline interest rate at 3 per cent. By 1994, the Federal Reserve had begun to raise rates, doubling them to 6 per cent by 1995 and sending the S&P earnings yield to more than 6 per cent during that year. So what did US stocks do? Between the middle of 1992 to the end of 1994, the S&P actually rose 15 per cent.
Anyone who had bought in 1992 before rates went up and held to end of the decade would have made two and a half times their money. Investors would do well to remain cautious following an eight-year bull market but should also be suitably sceptical of the prevailing consensus.
____________________________________________________________
http://money.cnn.com/2017/04/19/investi ... -election/
The Trump rally is facing some new competition from an unlikely spot: Europe.
Despite an unnerving election in France looming, investors are dumping pricey U.S. stocks in favor of much cheaper ones in the embattled eurozone.
That's according to a Bank of America Merrill Lynch survey of global fund managers that found investors have become the most bullish on the eurozone in 15 months.
____________________________________________________________
http://www.marketwatch.com/story/fund-m ... 2017-04-19
Fund managers are avoiding U.S. stocks like never before in this bull market
Published: Apr 20, 2017 10:01 a.m. ET
“Uncle Scram” — that is how strategists described the latest moves by fund managers.
Allocations to U.S. stocks have fallen to their lowest levels since January 2008, according to Bank of America Merrill Lynch’s global fund manager survey for April, released Wednesday.
Positioning in U.S. equities has dropped to a net 20% underweight, down from 1% overweight a month ago. This allocation is below the long-term average, noted the strategists behind the survey.
The catalysts behind the scramble away from American stocks include their expensiveness, as well as growing worries about delays for much-anticipated U.S. tax cuts.
“A net 83% of investors think [the] U.S. is the most overvalued region, the highest response on record,” said BAML strategists Michael Hartnett and Jared Woodard in a note.
Back in early 2008, the S&P 500 SPX, -0.19% was on its way to a big loss for that year. The U.S. stock benchmark eventually found a bottom in March 2009, when the current bull market is widely viewed as having begun.
So what do fund managers like now?
Love for eurozone stocks EZU, -0.11% has surged, despite the French presidential election, which has its first round of voting on Sunday, the strategists said. The rotation last month to eurozone stocks from U.S. equities was the fifth largest since 1999.
Respondents see a 5% or 10% drop for European stocks if populist candidate Marine Le Pen become France’s next president, but investors have become less worried about the European Union’s possible disintegration, the BAML survey found.
Last month, the survey revealed that 67% of fund managers expected a bear market for stocks if the 10-year Treasury yield rise to a range of 3.5% to 4%.
On Thursday morning, the S&P was trading slightly higher, putting the index up more than 4% for the year.
This story was first published on April 19, 2017.
_____________________________________________________________