Asset AllocationJune 17, 2015

Risk Hiatus as Investors Mull Market Hazards

There are too many risks and not enough options for investors this summer, market reviews have shown.

Reported by Featured Author

Greece, the Fed finally tightening, and a potential Chinese bubble are causing investors to reconsider where they want to allocate, according to a monthly survey.

Investors and fund managers with assets totalling $562 billion told the Bank of America Merrill Lynch survey that they had taken several defensive measures over the past month.

“Higher cash levels show how caution is in the air, with 65 trading days until we expect the Fed to tighten.” —Michael Hartnett, BoAMLCash levels in investors’ portfolios spiked to 4.9%, which was the highest since January, the bank said, as they sold equities as protection. A net 38% of investors said they were overweight equities in June, down from 47% last month.

“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.

A consensus of 80% of respondents said they believed there would be a change in short-term interest rates, with the third quarter of the year likely to see the first movement.

A break up of the Eurozone was the third largest concern with investors—even if it hadn’t registered on the dial last month, according to the bank’s research.

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

Equities that took a significant hit were in emerging markets this month.

“The proportion of investors expecting to underweight global emerging markets surges to a net 21% from net 6% in May,” the bank said.

Confidence in emerging market equities hit a 15-month low with current allocation at a “chunky” 1.9 standard deviation below its long-term average, the bank said. The reluctance to buy the asset class was partially attributed to deterioration in Chinese growth expectations: a net 50% of managers expected a weaker Chinese economy in the June survey.