In its monthly survey of fund managers, Bank of America Merrill Lynch said Tuesday that global investors are pulling back on their holdings of equities — and have “less appetite for higher-risk exposures, particularly in the U.S.”
The analysts said 47 percent of those polled “remain overweight equities,” but this is down seven percentage points from April’s reading. For U.S. stocks, fund manager positions declined to 19 percent underweight equities, which is “in contrast to strong over-weights across” the first quarter, the report stated.
The poll also showed that confidence in corporate profitability has eroded “with only 7 percent of investors viewing the U.S. as the region with the most favorable earnings outlook.” Simultaneously, over-weight cash positions have soared — jumping to 23 percent, which is the highest it’s been since December of last year.
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“These shifts follow the recent aggressive sell-off in bond markets,” the analysts said in the report. “The survey shows a strong rise in panelists’ assessment of bonds as the asset class most vulnerable to volatility in 2015 — up to 56 percent. Bond underweights have also increased.”
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Regarding respondents’ outlook on the economy, the readings were relatively flat from April, with 59 percent expecting the global economy to “strengthen this year, though forecasts of corporate profitability have fallen a little. Seventy percent of respondents see both growth and inflation remaining below historical trends over the next 12 months.”
James Barty, head of European equity strategy at the bank, said “investors are keeping faith with European stocks for now, but this remains biased toward currency plays.”
In the retail, fashion apparel, beauty and luxury space, the strong dollar has impacted U.S. business with sales overseas while benefiting European and Asia-Pacific companies that export to the U.S. In the WWD Global Stock Tracker, for example, the top, three-month gainers are mostly companies from the Asia-Pacific region and Europe and include Youngor Group Co., Yoox.com, Ted Baker, Debenhams Plc and Luxottica Group SpA. The top U.S. firms for the same period include G-III Apparel Group Ltd. and Urban Outfitters. Shares of these companies are up between 30 and 160 percent for the past three months.
For U.S. companies in the retail and apparel sector, other issues have plagued top- and bottom-line results. But this is expected to change. The challenge is for investors to gain confidence in the sector.
In an assessment of first-quarter results, Dana Telsey, chief research officer and chief executive officer of Telsey Advisory Group, said in a separate report that overall, “the first quarter was filled with disruption, including the West Coast port delays, adverse weather and fewer overseas tourists visiting the U.S. For most companies, this led to sales coming in lower than expected. Encouragingly, there was a pickup toward the end of the quarter and at the start of the second quarter. This, combined with expectations for ongoing improvement in the economy, has led company executives to maintain confidence that their expected sales targets for 2015 will be met.”
Still, Telsey said that investors, “on the other hand, are less confident and want more proof that the sales will accelerate and hold. This may lead to the traditional pattern of under-performance for consumer discretionary stocks during the summer months.”