Taking heart, fund managers worldwide to turn toward equities, survey says

Most fund managers expect the world economy to improve in the next 12 months, according to a survey released today by Banc of America Securities-Merrill Lynch Research, a New York-based unit of Charlotte, N.C.-based Bank of America Corp.

The monthly survey, conducted May 8-14, combined a global survey of 220 fund managers managing a total of $617 billion in assets with regional surveys of 182 managers managing $355 billion.

In May’s survey, 57% of respondents said they expected the economy to improve over the next 12 months, up from 26% in April.

With a bullish outlook on the economy, portfolio managers have begun investing more in equities, the survey said.

Average cash holdings by the managers dropped to 4.3% in May, from 4.9% in April, the survey found. Equities, while underweighted, were more popular, the firm said in a statement.

In addition, managers moved to a net underweighted position in bonds for the first time since last August, the survey said.

“[Portfolio managers] are finally opening their wallets and reducing cash balances to midcycle levels to buy equities, cyclical stocks and risky assets,” Michael Hartnett, Banc of America Securities-Merrill Lynch Research’s co-head of international investment strategy, said in a statement.

A full 46% of respondents reported that they overweighted emerging-markets stocks, up from 26% percent in April, the survey found.

Bullishness about China’s economy has reached its highest level since the survey began tracking China in 2003, the firm reported.

Sixty-one percent of respondents expected China’s economy to improve, up significantly from November when 87% said they expected the Chinese economy to weaken.

A shift out of defensive investments toward cyclical stocks continues, the survey found.

For example, managers reported that holdings were underweighted in pharmaceuticals. They also reduced holdings in staples, telecommunications and utilities in favor of energy, materials and industrials.

The survey was conducted with help from market research firm TNS Global Worldwide of London.