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Managers cut cash holdings as appetite for risk increases

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Global investors have cut their cash holdings and increased their exposure to equities, real estate and alternative investments, according to the Bank of America Merrill Lynch.

In its latest November fund manager survey, the Bank of America Merrill Lynch found that investors were regaining their appetite to take risk, with 81% of those managers questioned – who collectively manage $576bn in assets under management – expecting the US Federal Reserve to increase interest rates in December. Last month just 47% of managers were predicting the Fed to move in December.

The result has been a large swing to equities during the last month, with the percentage of asset allocators overweight in equities rising 17 percentage points to a net 43%. At the time they cut the degree of their overweight position in cash to the lowest level since July this year, down from 5.1% to 4.9%.

This increase may have been buoyed by their more optimistic outlook on the prospects for the global economy, with net expectations of it strengthening within the next 12 months rising 22 percentage points compared with October.

While asset allocators remained aggressively underweight in commodities and global emerging markets, their exposure to real estate and alternative investments rose to their second-highest readings in the survey’s history.

In terms of country positions, the eurozone and Japan remained the most favoured regions globally. Meanwhile growth expectations in China jumped to its highest level in 15 months, with a net 4% of managers only predicting a weaker economy in the next 12 months (down from a net 22% last month).

Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, said: “With consensus very clustered in QE and strong dollar trades, asset price upside appears limited until an ‘event’ curtails the Fed hiking cycle, as in 1984.”

Manish Kabra, head of European quantitative strategy, added: “While European equities are loved by global investors and the ECB has created some excitement about growth, sector positioning shows local asset managers are lacking conviction and hugging their benchmarks.”