A recent survey of investment managers by Bank of America Merrill Lynch shows that they are becoming more pessimistic. In fact, according to the most recent survey, pessimism is at its highest level since late 2011 with nearly a quarter of respondents expecting global growth to slow in the next 12 months, an increase from just 7% in June.
The largest factor that is contributing to investment manager pessimism appears to be the trade war, which was referenced by over 40% of respondents as their biggest fear. However, other concerns were also cited including the risk of an economic slowdown in China and the potential for rising interest rates and a stronger US dollar to lead to a debt crisis in other emerging market countries.
In addition, nearly half of investment managers believe that the recent decoupling between US and foreign stock markets will likely come to an end with US markets succumbing to the global trend. Investment managers are not only changing their opinions but are also taking action to de-risk their portfolios. For example, money market funds, a common cash equivalent, totaled $2.84 trillion in July, a 7.1% increase from the prior year. Cash now totals 5.1% of investment managers’ overall allocation, the highest level in 18 months. In addition, taxable bond mutual funds increased to $3.46 trillion in total assets, a 5.7% increase from the prior year.