great rotation from bonds to equities has begun

The ‘great rotation’ out of bonds and into equities has started to get underway, the latest Bank of America Merrill Lynch (BofAML) Fund Manager Survey suggests.

great rotation from bonds to equities has begun


The survey, which was carried out in early November, found asset allocators have increased their positions in equities over the past month while lowering their exposure to bonds. This is the fifth month running this trend has been seen.

A net 35% of global fund managers are now overweight equities, compared with a net 25% reporting this in last month’s poll. Meanwhile, a net 35% are underweight bonds, up from 26% one month earlier.

Michael Hartnett, chief investment strategist at Band of America Merrill Lynch Global Research, said: “Momentum has gathered behind the idea that we are on the cusp of a ‘great rotation’ out of bonds and into equities. The only missing ingredient is a resolution to the US fiscal cliff.”

The US fiscal cliff – a $600bn series of tax rises and government spending cuts that threatens to send the world’s largest economy back into recession – remains the biggest tail risk for asset managers, cited by 54% of the survey’s panel. This is up from 42% a month ago.

But asset allocators’ optimism over the global economy outweighed the fear created by the fiscal cliff, with a 34% of respondents expecting the world economy to strengthen in the coming 12 months. After a monthly rise of 14 percentage points, this is the highest optimism in the global economy has been since February 2009.

However, asset classes outside of equities showed little sign of benefitting from higher levels of risk taking. Allocations to commodities fell over the month, remained flat for real estate and rose by just two percentage points for alternatives.

The BofAML Fund Manager Survey polled 248 panelists with $695bn of assets under management. It was carried out between 2 November and 8 November.

Recent figures from the IMA showed sales of equity funds overtook those of fixed income portfolios for the first time in a year during September. Net inflows to equity funds rose to £541m over the month, compared with £320m of flows for fixed income vehicles.

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