Credit crunch concerns prompt fixed income flight

Investors are the most underweight to equities relative to bonds since the Global Financial Crisis as fears of a credit crunch drive up fixed income allocations.

The April global fund manager survey from Bank of America (BoA), conducted between 6 to 13 April of 249 participants with $641 billion in assets under management, found investors were the most overweight to bonds since March 2009.

Fund managers’ equity allocations were down two percentage points to a net 29 per cent underweight, and investors moved into defensive sectors such as utilities, consumer staples and healthcare at the expense of banks and materials.

Allocations to Eurozone, emerging markets and Japanese and UK equities all decreased with Eurozone and UK equities, in particular, “collapsing” by 18 and 15 percentage points respectively. Eurozone equities were now 1 per cent overweight, while UK allocations were 21 per cent underweight.

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On bonds, their allocation jumped nine percentage points to a net 10 per cent overweight, which BoA said was the largest overweight since March 2009. 

Over half of respondents said they believed investment-grade bonds would outperform high-yield ones over the next 12 months, the highest-ever allocation.

Cash levels sat at 5.5 per cent, unchanged from the previous month and the 17th consecutive month that cash levels had sat above 5 per cent. 

Cash allocations increased to a net 43 per cent overweight, a five percentage point rise month-on-month. 

Looking at sentiment, growth expectations had worsened and a net 63 per cent of respondents were expecting a weaker economy. Some 84 per cent said they expected CPI inflation to fall and 58 per cent predicted lower short-term interest rates. 

The biggest tail risk was a bank credit crunch and global recession, cited by 35 per cent of respondents, followed by high inflation keeping central banks hawkish and a systemic credit event.