Managers Hoarding Cash as Oil Plummets

Asset allocators are stockpiling cash despite a positive outlook for risk assets in 2015, according to a survey of fund managers.

Bank of America Merrill Lynch’s (BoAML) monthly survey on global fund manager sentiment and positioning found its respondents to have built up cash piles to an average 5%—the report’s highest reading in two and a half years.

Manish Kabra, European equity and quantitative strategist at BoAML, said a weakening business cycle and falling commodity prices were affecting the convictions of managers.

“We are seeing capitulation out of energy and materials to the benefit of the dollar, cash, Eurozone stocks, global tech, and discretionary stocks,” added Michael Hartnett, chief investment strategist at BoAML Research.

An increasing proportion of fund managers were allocating money to European equities, the BoAML report said. This was likely to be in anticipation of the European Central Bank introducing a quantitative easing program, BoAML said, which managers expect as soon as the first quarter of 2015. As a result, deflation in the Eurozone was seen as less of a risk to investment portfolios—managers instead highlighted geopolitical tensions as their greatest concern.

Looking ahead, two-thirds of respondents tipped equities to generate the best total return in 2015. A net 52% of managers were overweight equities when questioned at the start of December.

At the same time, a net 59% of managers were underweight bonds relative to their own benchmarks. Just 6% of managers believed government or corporate bonds will prove 2015’s best investment.

Fund managers were unsurprisingly negative on commodities following the collapse of the oil price during December, but more than a third of those surveyed said oil now looked undervalued: Brent crude oil fell to below $60 a barrel on December 16, according to Bloomberg.

More than a fifth of managers told BoAML’s survey they expected currencies and commodities to generate the highest returns next year.

Source: BoAML Fund Manager Survey, DataStream

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