Investors taking ‘near-record high’ risk: BoAML survey

A “near-record high” amount of investors are taking more risk than they would normally as expectations about global growth and profitability prove strong, according to a Bank of America Merrill Lynch survey.

The bank’s Fund Manager Survey for January shows risk-taking by investors is “near historic highs”.

“A net 4 per cent of investors say they are taking higher-than-normal risks,” Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, said.

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“Since the start of this survey this figure has been solidly positive on only three previous occasions. This appetite for risk is also reflected in investors’ preferred sectors – tech, industrials and banks top their overweight lists while utilities, staples and telecoms languish in underweight territory.”

Mr Hartnett added a net 75 per cent of those surveyed expected the global economy to strengthen in 2014 - up from 71 per cent in December, which continues “a trend of rising optimism that started in late 2012”.

“This optimism is reflected in rising expectations for corporate profits with a net 48 per cent looking for an improvement, up from a net 41 per cent in December,” he added.

“Among the regions, a net 29 per cent of investors choose both the US and Japan with the most favorable prospects for profits. Europe has improved to a net 8 per cent expecting profit improvement from a net 4 per cent expecting deterioration in the December survey.”

Interestingly, confidence in equities remained in spite of a net 7 per cent of respondents believing equity markets are “overvalued”, the “highest reading since 2000”.

“The overvaluation view is driven predominantly by the views on US equities where a net 72 per cent say stocks are overvalued,” Mr Hartnett said.

Elsewhere, tinvestors increasingly believed companies should be using their rising profits to grow their businesses with 67 per cent saying companies are “underinvesting”, another “record high reading in the history of the survey”. More than half of respondents wanted to see more capital expenditure from companies, Mr Hartnett said.

The survey showed 61 per cent of respondents expected a sharp deterioration in profits up from 32 per cent in December while the “biggest tail risk” to global growth was deemed a sharp deceleration in economic growth in China.

More managers were positive on Europe with 22 per cent citing equities on the continent as undervalued - up from 15 per cent in December.

“On a 12-month view, when asked which equities they would most like to overweight, investors picked Europe with a net 34 per cent, the second-highest reading in the history of the survey," Mr Hartnett said.

“Likewise, for the same timeframe, only Japan scored a positive with a net 12 per cent would like to overweight, while a net 13 per cent and a net 28 per cent expect to underweight US and GEM equities respectively.”

A total of 234 panelists with $653bn (£396.4bn) of assets under management participated in the survey.