BAML survey and fund managers

BAML (Bank of America Merrill Lynch) conducted a survey that polled 244 global investors with $742 billion in total assets under management from September 7–13.

Divergence Trade Strong: Fund Managers Full Throttle on Stocks

Equity allocations to emerging markets decline

The divergence theme in equity markets was quite evident in the allocations in September. The equity allocations to emerging markets (EEM) fell to 10% underweight in September compared to 1% underweight in August. That reflects a huge fall of 53 percentage points since April. It’s also the lowest allocation since March 2016.

In the past month, the emerging market currency crisis has worsened. The huge declines in the currencies of Turkey (TUR) and Argentina have the makings of a global contagion. The currencies in Indonesia, India, South Africa, and Brazil are also hitting lower lows. Allocations to Eurozone equities (EZU) fell to an 18-month low, to 11% overweight.

US stocks are still in favor

In contrast to equity allocations for emerging markets and the Eurozone, allocations to US equities rose to the biggest overweight since January 2015. The overweight on US stocks in September increased by 2 percentage points to 21%. That optimism is driven by expectations for corporate profit growth with an overwhelming 69% of participants considering the United States the most favorable region for corporate profit growth.

Decoupling

The decoupling theme, which is evident in the performance of US equities compared to the rest of the world, is paramount in investors’ minds. About 48% of the respondents believe that decoupling in the global economy could come from a US slowdown rather than a rise in the rest of the world. Another 28% think that Asia and Europe could accelerate. US stocks are gaining in contrast to their European and emerging market counterparts on the back of tax cuts and strong earnings growth.

The S&P 500 (SPY) has risen 8.7% year-to-date, and the Dow Jones Industrial Average (DIA) has risen 5.9%. The technology-heavy NASDAQ Composite (QQQ) has risen 18.1%.

In this series, we’ll look at fund managers’ most crowded trades and top concerns and how investors can position themselves to possibly benefit.

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