November 14, 2014
Most fund managers expect stocks to be the best investment next year with hedge funds loading up their equity holdings to the highest in 18 months.
Sixty-three percent of money managers said equities will show the strongest performance in 2015, with currencies, commodities and bonds less likely to lead, according to Bank of America Merrill Lynch’s monthly fund manager survey.
Almost half of respondents expect a stronger global economy in the next 12 months, helping to fuel market gains.
Hedge funds increased their net exposure to stocks to 45 percent of holdings, the highest since May 2013, according to the report. Cash levels as a percentage of total fund assets fell slightly from October, but are high enough to fuel additional stock-buying.
“Cash levels dropped to 4.7 percent but remain high enough to fund further risk asset upside,” Bank of America Merrill Lynch said.
The S&P 500 has risen 11 percent this year, putting it on track for a third year of gains, while Europe’s Stoxx 50 index has gained about 4 percent. Japan has risen about 8 percent.
Fund managers are optimistic about the Japanese market, with one of out of four saying they want to overweight the region’s stocks, the highest since November 2005. Japan’s market has more than doubled in value in the past two years as the country undertook a massive monetary stimulus plan.
The Bank of Japan on Wednesday voted to continue growing its monetary base by $683 billion a year as the country seeks to bounce back from its fourth recession in six years. The country delayed a planned hike in the sales tax to 10 percent from 8 percent because of the economic contraction.
Most fund managers expect the Federal Reserve to begin hiking interest rates in the third quarter of 2015, while only 9 percent of managers anticipate a recession next year. BofA said 166 fund managers overseeing $431 billion responded to the November survey.
Meanwhile, analysts at Credit Suisse forecast strong performance for stocks during the first half of 2015. The Swiss investment bank is looking for the S&P 500 to reach 2,200 by mid-year, according to a story by Marketwatch.com. That level is about 7 percent higher than the benchmark’s current level.
Fueling the stock growth will be more money printing from the Bank of Japan and European Central Bank, the bank said. It recommended selling the euro versus the U.S. dollar and dumping gold.