Global asset allocators rotate into British equities

Global asset allocators have taken their most positive stance on British equities for over three years according to August’s Bank of America (BofA) Merrill Lynch Fund Manager Survey.

In August a net 2% of asset allocators were underweight in UK equities, versus a net 15% underweight in July, the lowest underweight stance since May 2007.

The move into Britain was at the expense of America and Japan, while there was also a large move into eurozone equities. In August a net 14% of allocators were underweight in America, down from last month’s 7% overweight, and the lowest level since January 2008.

“The US now seems to be the focal point of global growth worries,” says Patrick Schöwitz, a European equity strategist at BofA Merrill Lynch Global Research.

“Either economic policies in the UK have cheered people up or it could just be a lack of alternatives”

Meanwhile Japan replaced Britain as the least popular region, with a net 27% of allocators underweight in August, up from 11% last month.”

Schöwitz says the reason behind the rise in popularity of UK equities is hard to explain. “Either economic policies in the UK have cheered people up or it could just be a lack of alternatives,” he says.

For the first time since November last year, asset allocators went overweight in eurozone equities in August, compared with a net 10% underweight position in July and a 34% underweight stance three months ago. In August, allocators had a net 11% overweight position in the region.

In terms of the rest of the survey, Schöwitz describes it as “a cautious and careful consensus”. (article continues below)

“It is not a survey that comes up with many macro conclusions,” he says. “The bearishness shown in the last two surveys has abated and risk appetite has stabilised. It seems many investors are waiting to see more data before doing anything.”

In August a net 5% of global fund managers predicted the global economy will improves over the course of the next 12 months, compared with the 12% of managers who last month predict the economy would deteriorate over the next year.

Meanwhile, cash balances fell from 4.4% in July to 3.8% in August, a sign that risk appetite is increasing. The underweight position in bonds increased further to a net 23% underweight from a 15% underweight last month.

Some 187 fund managers with a total of $513 billion (£327 billion) of assets participated in the survey. It was conducted with TNS, a market research company, from August 6-12.