BofA Merrill Lynch Fund Manager Survey Finds
Investors Braced for Below Trend Growth and
Low Inflation in 2012
Asset Allocators Make Late Move Into U.S. Equities
December 13, 2011 08:33 AM Eastern Time
NEW YORK & LONDON--(EON: Enhanced Online News)--Global investors are looking to U.S. equities as they
prepare themselves for a year of low growth and low inflation in 2012, according to the BofA Merrill Lynch Survey
of Fund Managers for December.
The survey of 190 institutional investors indicates a growing majority, almost two-thirds of the panel, predict 2012
will be a year of below-trend growth and below-trend inflation. It is the highest such reading since October 2010
and up from 52 percent in November.
Investors are responding to the weak outlook with a preference for U.S. and Emerging Market equities while the
negative stance towards the eurozone hardens. A net 50 percent of the panel says that the outlook for corporate
profits is the most favorable in the U.S. – up from a net 47 percent last month. A record number, a net 72 percent,
name the eurozone as having the least favorable outlook for corporate profits. Investors have also expressed a view
that the dollar will strengthen and the euro weaken in 2012.
Some asset allocators dipped into cash reserves to make an end-of-year move into equities with the U.S. their
preferred destination. A net 8 percent of asset allocators are overweight equities this month, compared with a net 5
percent underweight in November. But the panel only increased equity positions in one region – the U.S.
“With improving growth prospects, U.S. equities are seen as a popular destination and a refuge from turmoil,” said
Michael Hartnett, chief Global Equity strategist at BofA Merrill Lynch Global Research. “Investors are slightly more
optimistic about equities but retain a defensive approach, so that means reduced European exposure and a
preference for counter-cyclical stocks,” said Gary Baker, head of European Equities strategy at BofA Merrill Lynch
Investors divided over eurozone’s future
Global investors are split over the future of the euro and the question about whether the eurozone can remain intact.
Nearly half of the panel (48 percent) believes that no member state will exit the euro in 2012 or the foreseeable
Nearly a quarter of the panel of 190 institutional investors (24 percent), expect one of the 17 member states to leave
the euro in the first half of 2012. In total, 45 percent expect a member to depart in the foreseeable future, with 7
Defensive sector positioning
Investors have consolidated defensive positioning in equities. Global allocations to Pharmaceuticals and Staples
increased over the past month. Pharmaceuticals have taken over as the most popular global sector with a net 36
percent of respondents holding an overweight position, up from a net 31 percent in November.
Investors reduced exposure to growth and cyclical sectors including Technology, Industrials and Discretionary. In
Industrials and Discretionary, respondents were extending already underweight positions.
Liquidity, inflation indicators show comparison with early 2009
Key indicators of market sentiment in the Survey of Fund Managers show parallels with the credit crunch months of
early 2009. Investors say that liquidity conditions have deteriorated significantly in the past month to reach their
worst level since April 2009. A net 13 percent of the panel rates conditions (such as depth of market and breadth of
bid-offer spreads) as negative.
In October, a net 4 percent described conditions as positive, and at the beginning of 2011, more than a net 50
percent of respondents were describing market conditions as positive. Liquidity still has some way to deteriorate
before reaching the nadir of the credit crunch when more than a net 60 percent described conditions as negative.
Concerns about inflation have eased to levels not seen since 2009. The proportion of the panel predicting a fall in
inflation fell to a net 34 percent in December, down 2 percentage points since November and the lowest reading
since March 2009. For the first time since March 2009, a majority (a net 6 percent) believes that global monetary
policy should be more stimulative. At the depth of the crisis more than a net 60 percent called for monetary stimulus.
Survey of Fund Managers
An overall total of 255 panelists with US$762 billion of assets under management participated in the survey from 2
to 8 December. A total of 190 managers, managing US$608 billion, participated in the global survey. A total of 137
managers, managing US$332 billion, participated in the regional surveys. The survey was conducted by BofA Merrill
Lynch Research with the help of market research company TNS. Through its international network in more than 50
countries, TNS provides market information services in over 80 countries to national and multi-national
organizations. It is ranked as the fourth-largest market information group in the world.
The BofA Merrill Lynch Global Research franchise covers more than 3,300 stocks and 1,000 credits globally and
ranks in the top tier in many external surveys. Most recently, the group was named No. 1 in the 2011 Institutional
Investor All-Asia, All-China and All-Japan surveys, marking the first time a single institution simultaneously tops all
three surveys. The group was also named No. 2 in the inaugural Institutional Investor Emerging Markets Equity and
Fixed Income survey, covering Emerging Europe, Middle East and Africa; No. 2 in the 2011 All-Latin America and
All-America Equity team surveys; and No. 3 in the 2010 Institutional Investor All-America Fixed Income, All-Brazil
and All-Europe Research team surveys.
In addition, the group was ranked the No. 1 Pan-European firm for Equity Sectors Research and the No. 2 Pan-
European firm for Equity and Equity-Linked Research in the 2011 Extel survey, both for the second consecutive
year. The group was also the winner of the Emerging Markets' magazine EM Research Global Award for 2010 and
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