BofA Merrill Lynch does and seeks to do business with issuers covered in its research reports. As a
result, investors should be aware that the firm may have a conflict of interest that could affect the
objectivity of this report. Investors should consider this report as only a single factor in making
their investment decision.
Refer to important disclosures on page 18 to 19.11711005
Global Fund Manager Survey
Icarus takes flight
Investment Strategy14 February 2017
Icarus takes flight
1. FMS cash dips in Feb to 4.9% from 5.1%, but cash level high (10-year avg = 4.5%) &
FMS Cash Rule still in buy territory. Our Bull & Bear indicator moves up to 6.3; we
remain long stocks & commodities until sell” signal triggered (B&B8.0).
2. FMS shows macro optimism surging: 23% say boom” (vs 1% one year ago) and 18% say
“goldilocks” (vs 6% one year ago); meanwhile 15% say “stagflation” (a 3-month low) and
while 43% expect “secular stagnation” this figure down sharply from 88% one year ago.
3. FMS ranks most likely bear market catalysts as follows: protectionism = 34%, higher
rates = 28%, financial event = 18%, weaker EPS = 15%. FMS says best protectionist
investment (and thus barometer of protectionist risk) = gold.
4. FMS says most crowded trade = long US dollar (= big reason US$ down YTD). FMS
asset allocation & positioning (Exhibit 1) continue to reflect up-in-$ expectations...
longs in Japan, banks, tech. More hawkish Yellen at “Humphrey Hawkins” could provide
upside catalyst for US$ given dovish market pricing of rate hikes. But Feb FMS shows
consensus strong-$ view faltering at margin with rotation to EM (biggest MoM jump in
11 months), energy & materials (largest OWs since spring’12).
5. FMS says a contrarian macro bear (expecting weaker growth) would sell banks, US dollar,
Japan, and buy bonds, utilities, staples. Meanwhile the contrarian macro bull (expecting higher
inflation) would reduce cash, sell REITs, tech, and buy sterling, EM, industrials.
Exhibit 1: The Longs & Shorts, relative to Global FMS history*
Source: BofA Merrill Lynch Global Fund Manager Survey
-2.0-1.6-1.2-0.8-0.40.00.40.81.21.62.0
GBP
EUR
Staples
Utilities
UK
Bonds
EM
Industrials
Healthcare
Energy
Eurozone
Materials
Commod
Equities
Tech
Cash
Japan
REITs
Discretionary
US
USD
Banks
Feb'17 Global FMS
Positioning vs history (z-score)
Investment Strategy
Global
Michael Hartnett
Chief Investment Strategist MLPF&S
+1 646 855 1508 michael.hartnett@baml
Brian Leung, CFA
Investment Strategist MLPF&S
+1 646 855 0389 brian.leung@baml
Jared Woodard
Investment Strategist MLPF&S
+1 646 855 2600 jared.woodard@baml
Notes to Readers
Survey period 3rd to 9th Feb 2017.
An overall total of 210 panellists
with $632bn AUM participated in
the survey.
175 participants with $543bn AUM
responded to the Global FMS
questions and 99 participants with
$224bn AUM responded to the
Regional FMS questions.
How to join the FMS panel
Investors/clients are encouraged to
sign up to participate in the Survey.
This can be done by contacting
Michael Hartnett.
Participants in the survey will
continue to receive the full set of
monthly results for the relevant
month in which they participate.
* data since 2006 for commodities & real
estate; data since 2001 for everything else;
note US$, EUR & GBP based on valuation
Timestamp: 14 February 2017 12:30AM EST
2 Global Fund Manager Survey | 14 February 2017
Charts of the Month
Exhibit 2: Global FMS average cash balance (%)
FMS cash drops in Feb to 4.9% from 5.1%, but
cash (avg = 4.5% past 10 years) high & FMS
Cash Rule still in buy territory.
As a reminder, the FMS Cash Rule works as follows:
when average cash balance rises above 4.5% a
contrarian buy signal is generated for equities. When the
cash balance falls below 3.5% a contrarian sell signal is
generated.
Back-testing is hypothetical in nature and reflects application of the strategy prior to its introduction. It is not actual
performance and it is not intended to be indicative of future performance.
Source: BofA Merrill Lynch Global Fund Manager Survey
Exhibit 3: US$ Valuation and Trade weighted index
% who think US$ overvalued is highest since
Sep’06 (net 28%).
Also note that long US dollar seen as most
crowded trade by far.
Source: BofA Merrill Lynch Global Fund Manager Survey
Exhibit 4: Which of the following investments would perform best if the world shifted decisively
toward protectionism
Best protectionist barometer is gold...34% say
gold best performing investment in
protectionist world.
Source: BofA Merrill Lynch Global Fund Manager Survey
Backtest Actual
600
800
1000
1200
1400
1600
1800
2000
2200
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
'01'02'03'04'05'06'07'08'09'10'11'12'13'14'15'16'17
FMS avg cash balance (%)S&P 500 (RHS)
68
73
78
83
88
93
98
-70
-50
-30
-1030
50
'04'05'06'07'08'09'10'11'12'13'14'15'16'17
Net % say USD overvaluedTrade Weighted USD (RHS)
05101520253035
Stocks
Treasuries
Cash
TIPs
US Dollar
Volatility
Gold
Feb-17
Global Fund Manager Survey | 14 February 20173
Positioning & how it’s changing…
Exhibit 5: Month-on-Month changes to Global FMS positioning (Feb’17 vs Jan’17)
Exhibit presents the MONTHLY changes to
global investor positioning from the January
FMS to the February FMS. Highlights include:
discretionary
commodities
Source: BofA Merrill Lynch Global Fund Manager Survey
Exhibit 6: The Longs & Shorts, relative to Global FMS history*
Exhibit presents the February investor
positioning relative to history, following the
MoM changes highlighted above:
weaker growth) would sell banks, US dollar,
Japan, and buy bonds, utilities, staples
inflation) would reduce cash, sell REITs,
tech, and buy sterling, EM, industrials
* data since 2006 for commodities & real estate; data
since 2001 for everything else; note USD, EUR & GBP
based on valuation
Source: BofA Merrill Lynch Global Fund Manager Survey
Exhibit 7: What do you think is currently the most crowded trade
Most crowded trades in Feb’17:
Source: BofA Merrill Lynch Global Fund Manager Survey
-6ppt-4ppt-2ppt+0ppt+2ppt+4ppt+6ppt+8ppt+10ppt+12ppt
Industrials
Utilities
Discretionary
Bonds
Commod
Eurozone
Materials
EM
Feb'17 Global FMS
MoM ppt chg in investor positioning
-2.0-1.6-1.2-0.8-0.40.00.40.81.21.62.0
GBP
EUR
Staples
Utilities
UK
Bonds
EM
Industrials
Healthcare
Energy
Eurozone
Materials
Commod
Equities
Tech
Cash
Japan
REITs
Discretionary
US
USD
Banks
Feb'17 Global FMS
Positioning vs history (z-score)
05101520253035404550
Other (please specify)
Short Chinese renminbi
Long US Small cap
Long Banks
Long US/EU Corporate Bonds
Short Government Bonds
Long US Dollar
Feb-17
Jan-17
4 Global Fund Manager Survey | 14 February 2017
Introducing the BofAML Global FMS Macro
Indicator
The rule
Buy global equities when Global FMS Macro is improving and cash level is rising relative
to past two months
Sell global equities when Global FMS Macro is deteriorating and cash level has fallen by
at least 50bp relative to past two months
Latest signal
The Global FMS Macro Indicator augments our existing Cash Rule with a filter for macro
momentum. It is currently in “buy” territory as FMS Macro has been trending higher for
the past 7 months and cash level is higher than it was two months ago. This is a bullish
combo for risk assets because investors have been reluctant to deploy cash even though
FMS Macro is positive and clearly on the upswing (Chart).
Chart 1: BofAML Global FMS Macro Indicator*
What is it
The BofAML Fund Manager Survey (FMS) is a
monthly survey of 200-250 primarily long-only
investors.
The FMS Macro Indicator is a year-on-year
measure that comprises five components:
investor inflation expectations, capex demand,
risk appetite, cyclicals vs defensive^ sector
positioning and equity vs bond positioning.
^ cyclicals = industrials, materials & tech; defensive =
staples, telcos & utilities
* based on YoY chg in inflation exp, capex demand, risk appetite, cyclicals vs defensive sector positioning and equity vs bond positioning
Source: BofA Merrill Lynch Global Investment Strategy, FMS, Bloomberg
Backtesting is hypothetical in nature and reflects application of the screen prior to its introduction. It is not intended to be
indicative of future performance. Past performance should not and cannot be viewed as an indicator of future
performance.
Exhibit 8: BofAML Global FMS Macro Indicator & “buy” signals
Source: BofA Merrill Lynch Global Investment Strategy, FMS, Bloomberg
Backtesting is hypothetical in nature and reflects application of the screen prior to its
introduction. It is not intended to be indicative of future performance. Past performance
should not and cannot be viewed as an indicator of future performance.
Exhibit 9: BofAML Global FMS Macro Indicator & “sell” signals
Source: BofA Merrill Lynch Global Investment Strategy, FMS, Bloomberg
Backtesting is hypothetical in nature and reflects application of the screen prior to its
introduction. It is not intended to be indicative of future performance. Past performance
should not and cannot be viewed as an indicator of future performance.
0246810
'99'00'01'02'03'04'05'06'07'08'09'10'11'12'13'14'15'16'17'18
BofAML Global FMS Macro Indicator
Scale (0-10)
150
200
250
300
350
400
450
'99'01'03'05'07'09'11'13'15'17
Buy signalsMSCI ACWI
150
200
250
300
350
400
450
'99'01'03'05'07'09'11'13'15'17
Sell signalsMSCI ACWI
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