The European Central Bank’s move to introduce quantitative easing (QE) in a bid to reflate the region’s economy has lifted eurozone equity allocations to their highest level since May 2007, the long-running barometer of the fund management industry found.
A record 51% of the survey participants made the region their top pick in equities over a one-year horizon, up from January’s 18% , and those expecting the European economy to strengthen rose to 81% from 49% the month before.
“The ECB has successfully vanquished global deflation fears,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Research.
In January the ECB announced an aggressive €1trn (£743bn, $1.14trn) bond-buying program, due to start in March, to ward off the threat of deflation and boost growth across the region.
However, investors’ new bullishness on Europe is strongly focused on just the 19-member euro zone with non-euro markets out of favour. A net 42% of regional fund managers now intend to underweight the U.K. and Switzerland this year, the survey found.
A total of 196 participants with $559bn under management took part in the latest survey which was taken between 6 and 12 February.
The US was the main loser in the switch to European equities with investors cutting their overweight positions to 6 % from 24% last month.
Overall, fund managers have increased their allocations to both stocks and cash at the expense of bonds, which are largely seen as overvalued.
Banks out of favour
The survey identified several other major sentiment shifts among institutional fund managers. Funds are shifting out of banks as global economic outlook disappoints, and moving into consumer discretionary stocks.
The energy sector is also coming back into favour as investors pare back last month’s epic pessimism on oil while many investors continue to see value in oil. A net 39% regard crude as undervalued, down slightly from January’s reading.
Technology stocks remain the world’s favourite sector, while utilities are the least favoured.
Sentiment towards gold is also improving. Forty percent of survey participants expect the price to be higher in 12 months’ time. Last month, bears on the precious metal still outnumbered bulls.
Meanwhile a snapshot of the European mutual fund industry taken by data group Lipper found the region’s big investors are back in a risk-on mode and were buying back into equity funds.
The information group said provisional flows data for Luxembourg- and Ireland-domiciled funds for January 2015 suggested bond funds, with estimated net inflows of around €11bn, would be the best selling asset class last month. Its analysis showed these would be followed by mixed-asset funds with around €7.6bn of inflows and equity products, with a rise of €5.5bn.
“Even though these numbers are estimates, it seems European investors are back in a risk-on mode and are buying back into equity funds,” Lipper said.
The information group said provisional flows data for Luxembourg- and Ireland-domiciled funds for January 2015 suggested bond funds, with estimated net inflows of around €11bn, would be the best selling asset class last month. Its analysis showed these would be followed by mixed-asset funds with around €7.6bn of inflows and equity products, with a rise of €5.5bn.
“Even though these numbers are estimates, it seems European investors are back in a risk-on mode and are buying back into equity funds,” Lipper said.
