Merrill issued its latest Fund Manager Survey last week, right after the sell-off in equity markets. The message to take out is: don’t buy on dips (well my view is that you always have to think long term, understand the fundamentals of any asset class and have a view on valuation, otherwise, don’t invest at all – but that’s not the point here, I think this survey is useful to gauge market sentiment).
Key points in the report:
« Close but no Buy the Dip from FMS : BofAML Feb FMS cash & portfolio de-risking show anxiety, but most FMS metrics indicate « pain trade » remains lower asset prices driven by stronger US$, hawkish central banks, and slowing global growth.
Bulls not Bears : FMS sentiment nudges BofAML Bull & Bear Indicator down from 8.5 to 8.4, i.e. remains in « sell » territory, suggesting likely test of recent market lows.
Asset allocators blinked : FMS cash level up to 4.7% from 4.4%¨ record 20ppt jump in protection-buying and a steep 12ppt drop in equity allocation… note FMS history shows monthly 16ppt drop in allocation required to signal a risk asset rout complete.
Bonds crash the party: 60% say Inflation & bonds most likely catalyst for cross asset crash (#2 was US/EU corporate bonds @15%), bond allocations cut to lowest since 1998. REIT exposure cut to 6year low ; top 3 crowded trades… #1 long FAANG/BAT, #2 short US$, #3 short volatility, strong US$ & lower yields would be painful. »
One of the most interesting charts in my opinion is the following one where « above-trend growth and inflation » is slowly taking place of the « below-trend growth and inflation » for the first time in 7 years.
It’s interesting to see from the above chart that in the past (2008-09, 2011-12) the crossing of the yellow and orange lines coincided with market downturns. No market prediction here, just an observation.
About market positioning – Equities are preferred to Bonds, Cash is overweight, Commodities are Neutral and Real Estate is a slight Underweight.