A net 59% of managers are overweight in equities compared with 56% in March and 53% in February. Managers also have a correspondingly strong underweight position on bonds. The investment bank’s survey data on this topic goes back to 1999.David Bowers, the chief global investment strategist at Merrill Lynch, says: “This is one of the most bullish surveys I’ve come across. Being an equity bear means you’re near extinction at the moment.” Fund manager optimism is reflected in their asset allocation positions. Cyclical markets such as Japan and emerging markets are favoured. In contrast America, which is a more defensive market, is generally shunned. Sector allocation takes a similarly bullish line. Managers generally favour energy and industrials, while taking an underweight position in utilities. “It’s a textbook pro-cyclical stance,” says Bowers. Strangely, given their aggressive asset allocation, fund managers are not that positive on the macroeconomic outlook. Bowers questions whether their attitude can be squared with their bullishness on equities: “I wonder if they are good enough to justify the very strong assumptions people are making about the world.” One answer to this paradox could be that fund managers are expecting some kind of positive surprise. For example, companies would benefit if the American economic cycle remained stronger for longer than expected. However, Bowers also identifies significant risks to the bullish outlook. The most important are a monetary tightening by the Federal Reserve that is more aggressive then expected and fragility in the global economy. Merrill Lynch’s accompanying survey of regional managers showed that Europe, including the UK, is a little different from the rest of the world. Insurance is the most popular sector in both Britain and continental Europe, as it is regarded as particularly cheap. A total of 302 fund managers, with $994bn (£517bn) under management, participated in the global and regional surveys from March 4-10. The survey was conducted with market research company Taylor Nelson Sofres.