Bank of America (NYSE:BAC) Survey Shows Fund Managers Moving Back into Equities

A Bank of America (NYSE:BAC) survey of fund managers around the world for the month of March revealed they are starting to believe in equities again and are looking to the United States more than Europe as the place to invest their capital.

The survey also found the fund managers are looking to get better returns and so are moving from a defensive posture to a more offensive one, implying an increased appetite for risk as they move money into the stock market.

To get an idea of how dramatic the move has been, 46 percent of the fund managers surveyed said they are now overweight with assets, an increase of 33 percent from February, where cash was king during that time.

Much of the reasoning behind this is the sovereign debt concerns of Greece in February which put most things on hold while everyone waited to see what the European Union was going to do; whether they would bail Greece out of let them fall on their own. Once Europe committed to saving Greece, most the concerns went away, although the PIIGS (Portugal, Ireland, Italy, Greece and Spain) continue to be in the background, with Spain close to having its rating downgraded, according to a recent Moody’s report.

Other factors are they believe inflation isn’t going to come about any time soon, which also increases risk appetite and the moving away from defensive investments. There is also the belief the Federal Reserve won’t increase interest rates until the end of 2010. They think the same about the European Central Bank as well, which in that case is expected to hold rates where they are into 2011.

Surprisingly, the percentage of fund managers surveyed no longer believe inflation will increase over the next year, falling from 46 percent to 34 percent. In January 61 percent thought inflation would be a challenge going forward.
 
What was reflected largely in this survey was investors were more willing to face corporate risk through investing in equities than they were by investing in areas with sovereign debt problems, i.e. Europe.

Consequently, money will flow away from Europe and into Japan and the U.S., said the majority of those responding.

Interestingly, even though fund managers are willing to take more risk, they don’t see the economy growing at all in 2010, seeming to imply there won’t be much money to be made. That could mean they look at equities as the lesser of two evils rather than opportunity smiling on them.

Either way, it looks like 2010 will be a down year for markets in general, with possibly the commodity market being the exception.