Fund Managers Gain Confidence in European Equities, Finds Survey

Investors are quickly regaining confidence in European equities while allocating less to fixed income, according to a Bank of America Merrill Lynch fund manager survey.

The survey, which covers a mix of funds, found that a net 36% of fund managers are overweight Eurozone equities in September, whereas just 17% were overweight in August. Allocations to these equities have bounced back to pre-crisis levels, reaching their highest point since May 2007.

Asset flows are also likely to continue to come into Europe, as a net 27% of those surveyed said the Eurozone is the region they would most like to overweight over the next 12 months, which is also the highest mark since May 2007. These levels represent growing confidence in Europe’s economy; in July, just 2% of fund managers wanted to overweight Europe. Plus, 50% said that the European debt crisis can be solved with stronger EU growth, whereas only 30% felt the same way in July.

As for emerging markets, investors are still net underweight at 18%, but there has been an improvement in sentiment. In August, a net 29% said emerging markets are the area they most want to underweight, and this dropped to 21% for September. Also, a net 36% said that global emerging market equities are the most undervalued, while only 26% felt the same in July.

While investors are warming up to equities, confidence is falling in bonds. The survey found that a net 68% of respondents are underweight bonds, which is the highest level since April 2006.