While the equities markets are hovering around record highs, with the S&P 500 breaking above 1900 for the first time Tuesday, investors are increasing their hoard of cash and those who are in the markets are favoring overseas stock and related exchange traded fund exposure.
According to a Bank of America Merrill Lynch fund manager survey, investors increased cash and reduced equity positions month-over-month, Financial Times reports.
Average cash levels were 5% of portfolios, the highest since June 2012 and up from 4.8% in April.
While markets reached all-time highs, investors remain cautious, with around one-third of survey respondents wary of Chinese debt defaults and 36% pointing to geopolitical tension.
“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?” Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, said in the Financial Times article.
Nevertheless, European equities still appeal to investors, attracting more investment inflows. About 36% of global asset allocators are overweight Eurozone stocks, up from 30% in April.
“Specifically, within Europe, investors are all aboard the periphery train, and there’s now simply no margin for error,” Obe Ejikeme, European equity and quantitative strategist, said in the article. “Spanish and Italian equities are preferred over those in the UK and Switzerland, while eurozone periphery debt is seen as the most crowded trade globally.”
Former PIIGS – Portugal, Ireland, Italy, Greece, Spain – economies have been among the best performing markets this year, with the exception of Greece. Year-to-date, the Global X FTSE Portugal 20 ETF (NYSEArca: PGAL) is up 12.4%, the iShares MSCI Ireland Capped Index ETF (NYSEArca: EIRL) is up 6.2%, the iShares MSCI Italy Capped ETF (NYSEArca: EWI) is up 12.1% and the iShares MSCI Spain Capped ETF (NYSEArca: EWP) is up 9.4%. On the other hand, the Global X FTSE Greece 20 ETF (NYSEArca: GREK) dipped 3.3% this year. [Prodigious PIIGS: These ETFs Soar, Gain Assets]
Looking ahead, 28% of respondents say they want to be overweight Europe over the next year, up from 23% in the previous month, while 14% say European equities are undervalued.
In contrast, U.S. equities are the least favored, with 18% of respondents saying they want to underweight the area, up from 9% in April.
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Max Chen contributed to this article.