Fiscal cliff “number one” risk for fund managers, BAML’s survey finds

Despite a positive sentiment on the future of the global economy, fund managers are increasingly concerned on the impact of the US fiscal cliff, according to results of the fund manager survey run by Bank of America Merrill Lynch (BAML) on 269 managers with combined assets of $734bn.

Nearly three quarters of global investors believe that the fiscal cliff is not substantially priced into global equities and macroeconomic data.

The fiscal cliff was identified as the number one tail risk by 42% of respondents, up from 35% in September.

Meanwhile, EU sovereign debt funding risk was seen as less of a threat. A net 27% of the panel see it as their number one risk, down from 65% in June.

Investors have become more positive, building on growing sentiment since the summer.

Concerns about the outlook for corporate profits have also eased noticeably. A net 11% of investors said corporate profits will fall in the coming year, down from a net 28% in September.

“However, expectations of a sharp bounce in earnings fell back with a net 58 percent saying double digit earnings gains are unlikely in the next year, up from 55 percent in September,” the survey found.

Equity allocations rose significantly month-on-month. A quarter of asset allocators are overweight equities, up from a net 15% in September.

Fund managers increased allocations to seven of the 11 global sectors, including banks and industrials. Allocations to the eurozone and global emerging markets increased, but allocations to Japan fell to a three-year low.

“While the U.S. fiscal cliff is a hurdle, growing belief in the global economy could spur a more ‘risk on’ stance from investors,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.

John Bilton, European investment strategist at the bank added: “The outlook for European equities is improving, eurozone fears are receding and appear largely priced into equity risk premia; core government bonds offer negative real yields so the impetus to rotate into stocks in Europe, as the outlook stabilizes, is profound.” 

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