Risk Appetite Back on the Rise for Fund Managers

Fund managers are taking on more risk in anticipation of a “Goldilocks” recovery in the economy, according to the BofA Merrill Lynch Survey of Fund Managers for April.

Optimism about macroeconomic growth is on the rise and investors are more bullish about the ability of companies to increase profitability, according to the survey results. The number of surveyed investors taking “above normal” risk in their portfolios is at the highest since January 2006.  A net 52% of the panel is overweight equities, up from a net 33% in February, and back to the level seen in January. Within equities, investors have scaled back their underweight positions on banks and raised exposure to cyclical stocks.

The number of respondents predicting “above-trend growth and below-trend inflation” has risen to 32% from 21% in March, the highest reading since the question first appeared in February 2008, BofA Merrill noted. Fewer respondents are expecting below-trend growth. Inflationary fears remain subdued and 42% of respondents expect no interest rate hike from the Fed before 2011, up from 38% last month.

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“April’s survey shows a growing number of investors envisaging a Goldilocks scenario of above trend growth and benign inflation. The findings are consistent with the view that the U.S. consumer, far from remaining in intensive care, is on the path back to good health,” said Michael Hartnett, chief Global Equities strategist at BofA Merrill Lynch Global Research, in a release of the results.

Positive Corporate Outlook

Surveyed fund managers are optimistic about corporate earnings, with a net 71% believing that corporate earnings will rise 10% or more over the next 12 months, up sharply from a net 53% in March. A net 42% of respondents believe that corporates can grow their operating margins in the next 12 months, up from a net 27% in March.

While investors have been renewing their belief in the corporate outlook, they have also increased portfolio allocations towards cyclical stocks, the survey found. A net 27% of asset allocators are overweight industrials, up from 20% the previous month, and the percentage of allocators overweight materials rose to 18% from 12%.

At the same time, a net 10% of respondents remain underweight banks this month, down from a net 24% in March. One in six investors is now overweight banks, compared with one in 10 in March.

A total of 197 fund managers, managing a total of $546 billion, participated in the global survey conducted by BofA Merrill Lynch Research with the help of market research firm TNS from April 1 to 8.

 

 

Survey: Retirement Plan Cutbacks to Stay in 2010

A majority of employers that made changes to their retirement plans in response to the economic downturn expect to keep those changes in 2010, according to a new Buck Consultants Survey.

A Buck news release said 77% of employers with defined benefit plans and 52% of employers with defined contribution plans will not reverse changes or are uncertain if they will reverse previous changes.

The most common changes employers made to DB plans in response to the downturn were to freeze participants’ benefits at their current levels (68% of plans covering salaried employees) and to close the plan to new employees (32% of plans covering salaried workers).

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Twenty-four percent of respondents elected to make changes to their DC plans during 2009. The most common change was to reduce employer contributions. Only 6% of respondents with a DC plan with employer matching contributions reported increasing their match during 2009.

More than 40% of survey respondents reported that their DB plan’s funded status had lost more than 20% of its value due to the economic downturn.

The study analyzed responses from nearly 200 organizations.

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