Asset Managers Opt for Value Over Growth

(April 15, 2014) – Asset managers’ outlooks on value stocks and emerging markets shifted dramatically this month, according to a survey of 188 senior investment staffers conducted by Bank of America Merrill Lynch.

The portion of respondents predicting value to outperform growth rose by nearly 30 percentage points since April, representing the single largest shift in managers’ macro views. 

Substantial research has pointed to persistent value premia in public equities markets over the long term. Many experts have attributed it in part to managers’ own bias for growth stocks—one that seems to have lifted, at least for the moment.

Roughly a third of those surveyed described their investment horizon as 12 months and beyond, while 55% pegged their outlook at six months or less.

Unlike with value-oriented stocks, Asset managers went against academic wisdom in their outlook on size. Respondents predicting large-cap stocks to outperform small-caps increased by more than 20 percentage points this month. 

Emerging markets were another point on which many managers changed their minds since March. Investors dialed back their extreme underweight of the region, from a net 31% to 13% reporting reduced exposure relative to portfolio target. 

Furthermore, more respondents felt emerging markets were undervalued than any point since 2001, when the survey began. Roughly half saw the assets as under-priced: by contrast more than 60% called US equities overvalued. 

The most crowded trades, according to managers, were going long on US high-yield bonds and European periphery debt. 

“After two years of cyclical outperformance in Europe, some of the exuberance we see in investor sentiment and positioning suggests a rotation into more defensive stocks and sectors may be imminent,” said Obe Ejikeme, a Bank of America Merrill Lynch European equity strategist.