Fund managers continue to turn towards equities and riskier assets as their expectations for global growth and inflation hit new highs, according to a new survey.
The vast majority of investors expect to see “slightly higher” inflation in 2011, but few anticipate interest rate increases from either the US Federal Reserve or the European Central Bank, according to the Bank of America-Merrill Lynch Survey of Fund Managers for January.
But UK investors might have cause to think differently about rates, said Gary Baker, head of European equities.
Although globally investors are arming themselves for rising prices and low rates, the recent higher than expected inflation in the UK puts the Bank of England under more pressure to lift interest rates than the Fed or ECB, he said.
“That certainly is going to give UK investors some pause for thought,” he said.
Interest in global equities hit a 3½-year high, driven by strong expectations for global growth. A net 55 per cent of investors said they were overweight in global equities, up from 40 per cent in December.
“It’s entirely what central banks are trying to engineer,” said Mr Baker.
In contrast, 54 per cent of investors were underweight on bonds, compared to the 47 per cent who were underweight last month.
“[Investors] have just decided they can’t fight the Fed,” he said.
Over half of investors expect growth in 2011, with 40 per cent expecting “above trend” growth, the highest since the question was added to the survey in early 2008.
But the survey found that investors do not expect to see a Federal Reserve rate rise until the fourth quarter or next year in spite of rising expectations for inflation.
The expectation for continued loose monetary policy gave a sharp boost to US equities. Investors, now 27 per cent overweight in that asset class, are the most bullish on them since late 2008.
At the same time, expectations fell for the continued growth of emerging markets, although the category remains investors’ favourite. Investors are 43 per cent overweight in emerging market equities, down from November when investors were 56 per cent overweight there.
Investors remained torn on Europe, as improved hopes for economic growth failed to push assets into the eurozone.
Nearly half of European fund managers expected the region to grow in 2011, but global investors still shied away from the region. Investors were 9 per cent underweight this month, down from a 15 per cent overweight position two months ago.
The long-running global survey covered 199 fund managers controlling a total of $562bn in assets between January 7 and 13.
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