- Investors identify fears of an EU breakup, a bond crash and a Republican winning the White House as the most commonly-cited tail risks.
- With inflation expectations at a 16-month high and perceptions of developed market equity and bond valuations at record highs, investors are no longer underweight in commodities for the first time since December 2012.
- Rotation out of healthcare/pharma, REITs and bonds, into banks, insurance, equities, commodities and EM.
- Investors cite Long high-quality stocks, Long US/EU IG corporate bonds and minimum volatility strategies as the most crowded trades.
- Allocation to EM equities rises to the highest overweight in 3.5 years, from 24% last month to 31% in October.
- Allocation to U.S. and Eurozone equities is unchanged from last month, while allocation to UK equities falls to net 27% underweight from net 24%.
- Allocation to Japanese equities improves modestly to net 3% underweight from net 8% underweight last month.
“This month’s cash levels indicate that investors are bearish, with fears of an EU breakup, a bond crash and Republicans winning the White House jangling nerves,” said Michael Hartnett, chief investment strategist.
Manish Kabra, European equity quantitative strategist, added that, “Although investors see an EU-disintegration as a big tail risk, European fund managers surveyed are more optimistic about the economic growth outlook for the Eurozone and expect stronger inflation.”
