Are Investors Losing Confidence in the Bull Market?

All good things eventually come to an end: That appears to be the current strategy among fund managers these days. With the impressive bull market in stocks turning 5 years old this year, investors are raising cash positions and lowering risk-taking.

According to Bank of America Merrill Lynch’s latest fund manager survey, average cash levels reached 5 percent of portfolios in May, the highest level since June 2012 and up from 4.8 percent in April. Meanwhile, a net 22 percent of fund mangers took below-normal levels of risk compared to just 11 percent a month earlier. Respondents to the global survey are confident about the world economy and corporate performance, but doubts remain about the pace of growth.

“Investors are showing belief in the economy, but with two big question marks: Are we on the brink of a disruptive event? And why, at this point in the cycle, isn’t this recovery stronger?” said Michael Hartnett, chief investment strategist at Bank of America, in a press release. A total of 218 panelists with almost $600 billion in assets under management participated in the survey in early May.

While the major U.S. indexes continue to make new record highs, there is clearly a shift taking place among the sectors. The survey found that a net 15 percent of investors increased their allocations toward more defensive sectors such as utilities and energy. On the other hand, a net 14 percent of investors reduced positions in banks, and a net 8 percent cut positions in technology.

The U.S. is the least-favored region, with a net 18 percent of fund mangers saying it’s the region they most want to underweight, which is double the net 9 percent only a month earlier. Interestingly, Europe is the region most in favor. A net 28 percent say it’s the region they most want to overweight over the next year. That is up from a net 23 percent in April, and a net 14 percent of investors believe European equities are undervalued. However, respondents say the euro is the most overvalued currency.

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