In August, a net 33% of managers said they thought corporate profits would increase over the next year, falling eight percentage points (ppts) from last month, and down 25ppts from January.
“Investor expectations of corporate profits have taken an ominous turn this year,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch, “which is a warning sign for equities over bonds, high yield over investment grade, and cyclical sectors over defensive ones.
“Further deterioration is likely to cause risk-off trades.”
In these condition, managers continued to cut their exposure to the US, with the level of underweight increasing from a net 20% in June, to 22% in July. The last time the underweight in US stocks was larger was in January 2008.
Meanwhile, the allocation to UK equities fell to the lowest level since November 2008, increasing 8ppts from July’s 30% underweight, to a net 38% in August.
Instead investors continued the trend of upping their weightings to Europe, global emerging markets and Japan. Average cash balances remained unchanged month-on-month at 4.9%
In terms of sectors, the defensive areas remained the favourites, with investors continuing to favour banks, technology, pharma, insurance and industrials, and avoiding utilities, telecoms, staples and energy.
Some 202 global managers with assets under management of $587bn took place in the survey, which was conducted between 4 and 10 August.
