Conflict in Ukraine and renewed concern over the global economy have prompted institutional investors to cut down on perceived risk-taking in their portfolios by selling equities and holding cash this month, according to Bank of America Merrill Lynch (BofAML).
The level of cash held by the average institutional investor has risen 4.8 percent in the past month and now accounts for 5 percent of portfolios, the highest level since June 2012, according to the BofAML fund manager survey for May.
At the same time, the proportion of asset allocators taking below-normal levels of risk has risen to a net 22 percent in May from a net 11 percent in April, BofAML says. The proportion now overweight equities has dropped to a net 37 percent this month from a net 45 percent last month.
Investors predict higher corporate profits and economic growth this year, however. A net 66 percent of investors surveyed predict the economy will strengthen in the next 12 months, an increase from 62 percent in the April survey. And the proportion of investors that predict corporate profits will rise in the coming 12 months has increased to 49 percent this month from 44 percent last month.
‘Investors are showing belief in the economy but with two big question marks: are we on the brink of a disruptive event? And why, at this point in the cycle, isn’t this recovery stronger?’ notes Michael Hartnett, chief investment strategist at BofAML Global Research, in a press release. ‘Specifically, within Europe, investors are all aboard the periphery train, and there’s now simply no margin for error.’
About 36 percent of investors surveyed cite geopolitical risks such as the ongoing Ukraine conflict that pits Russia against the West as their main cause for concern. About a third of investors, meanwhile, cite the possibility of Chinese debt defaults.
The US proved to be the least popular investment opportunity for investors in May, with a net 18 percent of investors saying it is the country or region they would most like to underweight. Europe is the favored investment spot, with a net 28 percent of investors saying it is the region they would most like to overweight.
