Asset AllocationNovember 12, 2013

Investors Drop to Lowest Bond Allocations Since 2006

<em>Investors don’t want bonds…but equities are too expensive.</em>

Reported by Featured Author

(November 12, 2013) — Global investors are holding their lowest level of fixed income securities in seven and a half years, according to a monthly survey by Bank of America Merrill Lynch.

A net 69% of respondents to the survey said they were underweight in the asset class, tying with the biggest number previously recorded in April 2006.

These investors were left stranded holding pockets full of cash, however, as the greatest number of them since January 2002 said they thought equities were overvalued. In this regard, a record low number of respondents thought large-caps would outperform over the next 12 months.

“Investors remain reluctant bulls. Who would have thought all-time highs in US stock prices would coincide with high cash levels?” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.

The Dow Jones Industrial Average closed at a record high on November 11, 2013, with the S&P 500 not far behind.

On a regional basis, investors were more confident of getting a good deal. The bank’s survey showed a net 18% of investors viewed Eurozone stocks as undervalued even after recent strong performance.

Emerging markets also fell back into favour; a net 44% expected emerging markets companies to improve profits over the next year. This compares to a net 11% in October and September’s net 8% expecting earnings to decline.

Much of the shift out of Chinese equities appears to have been directed into Korea. Global emerging markets fund managers ramped up their overweight on the country to a net 56%, up 34 percentage points.