Global fund managers are in a holding pattern ahead of the U.S. presidential election, with most taking a cautious stand until the November vote, a new Merrill Lynch & Co. Inc. survey suggested Tuesday.
As well, Merrill's survey of fund managers found most remain concerned about inflation prospects and expect higher interest rates over the next year.
According to the findings — the result of a survey of 290 fund managers — a net 57 per cent are braced for higher global core inflation, while a net 90 per cent expect short-term interest rates to be higher a year from now.
A net 14 per cent expect the global economy to weaken over the next year.
The net balance is drawn from subtracting the percentage of fund managers reporting a positive outlook from those with a negative outlook.
“Despite expectations of central banks tightening into a global slowdown, institutional investors have still not adopted a classic defensive stance,” David Bowers, chief global investment strategist at Merrill Lynch, said in the report.
“Managers are aware that cash levels remain at high levels and could be put to work in equities before year-end.”
Cash positions, the survey found, remain at about 4.7 per cent of assets, down slightly from August's 4.8 per cent but up from July's 4.2 per cent.
A net 22 per cent of those surveyed reported a cash position above normal. On balance, a net 11 per cent thing global equities are under valued, unchanged from August.
In September, fund managers also increasingly preferred companies to return cash to shareholders, with 46 per cent picking options like share buybacks and increased dividends as a suggestions for what companies do with their cash flows. That was up from 41 per cent in August, the report said.
In terms of the U.S. election, managers also increasingly expected a win by president George W. Bush — a turnaround from August's poll, when a slim majority pegged Democratic rival John Kerry as the victor.
According to the latest findings, a net 46 per cent now expect to Mr. Bush to win. By comparison, a net 3 per cent predicted a victory by Mr. Kerry in August.
A net 18 per cent said a win by Mr. Kerry would have a negative impact on the U.S. financial markets, while 55 per cent said either it wouldn't matter or they didn't know what impact it would have.
A month earlier, a net 24 per cent thought the U.S. markets would take a Kerry win badly.
© The Globe and Mail
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