BofA Merrill Lynch Fund Manager
The results from the August BofA Merrill Lynch Fund Manager Survey.
The bottom line of the August survey, according to BAML chief investment strategist Michael Hartnett: buy the "Crash Test Dummies."
"In our view, the summer decline in bonds, [emerging markets] & gold (the first of a likely series of “QE crashes”) has created short-term trading buy opportunities in these now very unloved assets," says Hartnett. "In contrast, [strong-dollar] plays (U.S./U.K. stocks, banks, discretionary) now appear relatively over-owned and likely underperformers near-term."
In a note to clients, Hartnett gives a big-picture overview of what fund managers are thinking these days:
Most are bullish on global growth...
Net 72% expect stronger global economy, most bullish growth consensus since December '09, as Eurozone optimism reaches 9-year high and China expectations bounce.
...rotation to Cyclicals, but still short Resources
Increased exposure to Banks and short-covering in Materials, funded by reduced exposure to the Utility sector. Tech the world's sector and investors appear convinced that U.S.-housing is likely to outperform China-housing (Chart 1).
Most are bearish on Bonds...Treasuries likely to rally
A remarkably low 3% of investors expect long-term bond yields to be lower in 12 months; no surprise asset allocation exposure to bonds at a 28-month low; fixed income concerns may explain why cash levels are still-high at 4.5%.
Most are avoiding Emerging
3rd largest [overweight] of U.S. equities in 10-years as U.S. [dollar] optimism remains very high; highest exposure to U.K. & Eurozone stocks since December '02 & January '08 respectively; contrarians should note decline in EM equity exposure to lowest since November '01.
The best August contrarian trades are...
...long EM, short U.S.; long Gold, short [the dollar]; long Bonds, short Nasdaq; long Utilities, short Banks.
Many of these trades are the opposite of what BAML has been advocating clients should be doing on a longer-term basis.
For example, the bank has been bearish on Treasuries, and they expect a "Great Rotation" out of the asset class in the coming years. Meanwhile, the bank has also written extensively about the rise of the dollar and its expected resurgence over a similar timeframe.