Global Investors Turn To Equities As Equities Turn To Records

The BofA Merrill Lynch Survey of Fund Managers comes out once a month. The February reports says that institutional money managers are more bullish about equities than at any time since the poll started in April 2001.

“A net 67 percent of asset allocators say that they are overweight global equities. This represents a significant further increase from January and December when a net 55 and 40 percent were overweight the asset class, respectively.” Emerging market investments dropped.

The DJIA is up 6% so far this year. Japan’s market is higher as are a number of markets in northern Europe and South America.  No large money manager wants to miss the chance to post strong first quarter results

There is a strong belief that as markets begin to increase institutions take large positions in equities and then abandon them to individual investors. The value of equities then begins to fall. The small investors take most of the losses. Things may be different this time around. The belief that stocks will continue to rise is widespread.

The value of equities could go up another 25% this year and continue the extraordinary run which began in March 2009. Or, there could be a sharp sell-off. Institutions seem ready to stay the course in equities and take the risk the market has not topped. If investing in the stock market is just gambling as some people say, the smart money has bet on another year of extraordinary improvement.

Douglas A. McIntyre