More Fund Managers Choosing Cash

 The nation's current lack of economic growth is causing many fund managers to try to reduce risk by pulling out of stocks and increasing their investments in cash and bonds.


It appears that many fund managers here in the U.S. don't really want to get involved with Europe's current debt troubles. The increasing problem of Europe's sovereign-debt crisis, along with worries about the lack of economic growth in both the U.S. and China look like they are having an effect on Wall Street, and many fund managers are reacting by scrambling to scale back on their level of risk in the past month. As was discovered in a recent Bank of America/Merrill Lynch survey, now more fund managers are attempting to reduce their risks by pulling most of their funds out of stocks and are significantly increasing their amount of investment allocations in cash and bonds.

The survey numbers also show that the manager's overweight stocks (overweight stocks are defined as a situation where a portfolio holds an excess amount of a particular security when compared to the security's weight in the underlying benchmark portfolio)
dropped to 27% in early June, from 41%  just one month ago, and at the same time, 18% of asset allocators are considered as overweight cash, thus representing the highest cash level held by most funds since back in June of 2010.

As the nation's economic growth continues in slow motion, many financial analysts and investors alike have been expecting the Federal Reserve Bank to try to spur growth through an extension of Operation Twist (Operation Twist is a monetary process where the Federal Reserve buys and sells short-term and long-term bonds depending on their objective at the time), or another full round of quantitative easing for the third time.

However, the Bank of America/Merrill Lynch survey also showed that a full two-thirds of the some 280 fund managers in the study who have about $828 billion in assets under management, have said they do not expect to see a full-blown QE3 coming anytime soon, mainly because they feel the financial markets haven't become pessimistic enough to warrant another round of easing by the Fed. The situation was summed up nicely by Michael Hartnett, chief global equity strategist at Bank of America/Merrill Lynch Global Research, when he said in a release that ├ČInvestor capitulation from risk assets is not yet visible despite higher cash levels and defensive rotation, and fears on global growth will need to rise further before hopes for QE3 can begin to be priced in

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