Global fund managers turn cautious in 4Q11

Global fund managers are looking to move away from equities to bonds and cash in the last quarter of the year, according to HSBC’s latest Fund Managers’ Survey.

While 30% of respondents maintained a positive view towards equities in 4Q11 from 63% in the previous quarter, half of fund managers (50%) are taking an underweight view towards equities (vs 25% in 3Q11) in the midst of continued market volatility.

A fifth of fund managers (22%) are bullish on bonds (vs 0% in 3Q11) while over half (56% vs 43% in 3Q11) are taking a neutral view in 4Q11 as investors continue to look for yield in a low interest environment.

Over four in 10 fund managers (44% vs 0% in 3Q11) are overweight towards cash in 4Q11, reflecting weaker investor sentiment as the European debt crisis remains unresolved.

HSBC’s quarterly Fund Managers’ Survey analysed 13 of the world’s leading fund management houses in October and November 2011 based on funds under management (FUM), asset allocation views and global money flows.

Simon Williams, HSBC’s Group Head of Wealth Management, Retail Banking and Wealth Management, said: “The survey shows a significant shift in sentiment across global fund managers as prolonged uncertainty in Europe and insipid US prospects continue to hinder global economic growth. The end of the quarter will be marked by a flight to ‘safe havens’ and a more cautious view on risky assets as investors wait for things to turn in 2012.”

Over four in 10 global fund managers surveyed remain bullish on North American (45% vs 63% in 3Q11) and Greater China (44% vs 57% in 3Q11) equities and the majority hold positive views towards Global Emerging Markets/High Yield bonds (78%) and Asian bonds (63%). Thirty per cent of respondents turned bullish towards US Dollar bonds from 0% in the previous quarter.

Williams added: “While fund managers have scaled back on their overweight views for all asset classes across various geographies, the survey also points to selective growth opportunities. With expectations of less stringent monetary policies in China, investors are staying positive on Greater China equities. On the back of still resilient corporate earnings and relatively undemanding valuations, the US equities markets could also offer potential gains. The continued strength of Asian economies and higher yields from emerging markets/high yield bonds compared to government bonds make these assets potentially appealing to investors.”

3Q11 global asset flows

The continued uncertainty in the global economy and market volatility resulted in a decrease in funds under management from both equity and bond funds in 3Q11. Funds under management across the global fund managers polled reached US$ 3.96 trillion at the end of 3Q11, down by US$ 440 billion or 10% from 2Q11. Equity funds accounted for 76% of the decline in FUM or around US$ 335 billion. FUM across balanced funds (US$ 42.7 b), money market funds (US$ 30.2 b) and bond funds (US$ 22.9 b) also fell significantly.

Net fund flows (as a percentage of FUM), which are derived by subtracting market growth from FUM growth across various asset classes during 3Q11 are shown in table 2.

Williams said: “Customers who have been used to investing in a relatively more predictable environment where sentiment was less likely to cloud investment choices will find these times challenging. It is important for today’s investors to focus on realistic wealth goals and take a long-term approach to investing. The key to weathering the current investment climate is to stay close to your portfolio and together with a trusted professional adviser, regularly review your asset allocation strategy to aim for balanced and diversified holdings.”