Oil price collapse triggers cash weighting jump, survey finds

Global fund managers have slashed their exposure to commodities and raised their cash weightings in the wake of the the plummeting price of crude oil, according to the December Bank of America Merrill Lynch Survey.

A net 28 per cent of asset allocators were overweight in cash in December – the highest level since June 2012 – and a net 26 per cent underweight in commodities. This is the highest underweight in commodities for almost a year and is up from the net 18 per cent underweight stance adopted in November, the survey shows.

The oil price collapse also lead to a big rotation out of the energy and materials sector, into the US dollar, eurozone, global tech and discretionary stocks.

“The prospect of ECB QE has brought growing consensus on European equities, but the weakening business cycle and falling commodity prices are working against true earnings recovery,” says European equity and quantitative strategist Manish Kabra.

Despite these defensive allocation moves, managers showed renewed confidence in the prospects for the global economy, with a net 60 per cent expecting it to recover over the next year, a rise of almost 30 percentage points in two months.

Meanwhile inflation expectations hit their lowest level since August 2012. According to 69 per cent of those surveyed deflation is the biggest risk in 2015 and expectations for a steeper yield curve are at their lowest since June 2012.

Looking into 2015, 67 per cent of global managers predict equities will be the best performing asset class, versus 22 per cent in favour of currencies, 4 per cent government bonds and just 2 per cent for corporate bonds.

An overall total of 214 panellists with $604bn (£386.3bn) of assets under management took part in the survey between 5 and 11 December.