Fund Managers "Carrying" A Lot Of Cash

Merrill Lynch sees a dramatic rise in the number of fund managers who are overweighting cash in its monthly global fund managers survey, but it also shows that 82 percent of the managers see global stock markets as fairly valued or under valued.

In a survey taken in the early days of February, Merrill found that the nearly 200 fund managers and asset allocators are the most risk averse they've been in seven years. Forty percent of the respondents also say they have a shorter than normal time horizon. That number was 33 percent in January.

Merrill also says a net 41 percent of the fund managers say they are overweight cash, a level last seen right after the Sept. 11 attacks in 2001. They also see investment time horizons "shrunk back to extremes" last seen in 2003. In January, a net 31 percent were overweight cash.

Merrill says the managers pared back their overweight in emerging markets. They are also less favorable toward "Eurozone" stocks and they continue to "shun" Japanese and U.K. equities. "So the winner from the current crisis appears to be the US stock market - supported by a widespread belief that the USD is undervalued," according to Merrill's report.

In the next 12 months, the managers see the emerging markets (35 percent) and the U.S.(31 percent) as the regions they would most like to overweight. The areas they want to underweight are Eurozone (22 percent), the U.S. and Japan (each 20 percent), then emerging markets (18 percent).

Bullish sign?
The managers' answers on global stock values had an interesting 50/50 split. Forty-one percent say global equities are fairly valued, and another 41 percent say they are undervalued. That compares to 32 percent who saw stocks as undervalued in January, while 49 percent saw them as fairly valued at that time. In December, the difference was even greater. The percent who thought they were overvalued was relatively consistent at 16 percent in February; 17 percent in January and 16 percent in December.

The number of managers expecting a global recession in the next 12 months increased to 28 percent who see it as likely or fairly likely. That number was 19 percent last month. The number saying a recession is fairly unlikely dipped to 55 percent from 59 percent.

I picked further through the report and found something else interesting. When asked to rate liquidity conditions, 38 percent say they are "good." That compares to 36 percent in January and 34 percent in December who said conditions were good. The percent who say conditions are "poor" is at the same time declining and getting to be near equal to the "good" camp. In February, the level of poor answers was 42 percent. In January, 45 percent thought it was poor and in December 44 percent thought it was poor. Back in November, 35 percent were finding conditions "poor" and 48 percent said conditions were "good."

Not surprising, just 2 percent saw conditions as very good in February, and 7 percent said they were "very poor."

The attitudes of big money managers are of course interesting. But there is also a view that when a big percentage of investors begin to think one way, it's a contrarian sign. For that reason, I will also mention that the latest Investor's Intelligence poll shows bullish sentiment declining to 36.7 percent form 41.6 percent--its lowest reading since June, 2006. Bearishness, meanwhile, rose to 35.6 percent from 32.5 percent.

Questions? Comments?