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Investors' cash overweight hits one-year high

London, September 14, 2010

Investors boosted their overweight cash positions to the highest level in more than a year in September as economic uncertainty and low risk appetite encouraged them to seek safety, a survey showed.

The monthly fund managers' survey from BofA Merrill Lynch showed investors added bonds even though they viewed the asset class as the most expensive relative to equities since the record began in early 2003.

According to the poll, which surveyed 215 managers who manage total assets of $579 billion, their cash balance rose to 4 percent from 3.8 percent, leaving their overweight cash positions at 20 percent from 10 percent last month.

Investors' net equity overweight position fell to 10 this month from 12 percent in August -- well below the April high of 52 percent. This means the difference between overweights and underweights is 10 percentage points. Bonds underweight fell to 15 percent from 23 in August.

"Investors are coming back from summer holidays feeling grumpy. Risk appetite is low and growth expectations are subdued. There is greater index hugging going on given the lack of conviction," said Gary Baker, European equity strategist at BofA Merrill Lynch.   

Hedge funds raised their gearing levels. The ratio of gross assets held by hedge funds relative to their capital jumped to 1.39, the highest level since early 2008, from 1.16 last month.   

However, this did not necessarily indicate hedge funds are turning bullish, as they can raise leverage to short assets or buy bonds. 

"It could be that they already see value, or that they had a poor year and with only a quarter left till the end of the year they may be trying to recoup performance," Baker said.   

Their net exposure to equity markets -- measured as long minus short as a percentage of capital -- rose to 26 percent from 22 percent but remained below a December 2009 peak of 35 percent.   

Regionally, a net 32 percent of investors are underweight Japanese markets, the most bearish reading for 9 months, while 72 percent of respondents view the yen as overvalued -- which is the highest reading on record.

"It is a big contrarian trade. Sentiment on Japan can hardly get worse," Baker said. - Reuters




Tags: investors | Overweight | BofA Merrill Lynch |

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