BofAML Fund Manager Survey Reveals Investor Worries

The Bank of America Merrill Lynch (BofAML) Fund Managers Survey has always been a good barometer of how what investors are thinking. The survey released this month shows us an interesting viewpoint. For the first time since the 2008-2009 financial crisis, corporate debt is at the top of investor worries.

Respondents to the survey revealed that fund managers want corporations to spend their extra cash to improve their balance sheets. This is instead of expanding or buying back shares. This is a sharp change to the preference of investors. For the past few years, investors liked companies that focused their capital expenditure on growth.

However, corporate bonds have reached a $9 trillion mark and this has made a lot of investors worried. Right now, 48 percent of the respondents of the survey think that companies have too much debt hanging over their heads. Prominent investors like Jeffrey Gundlach of DoubleLine Capital are warning the market that the large amounts of debt could lead to problems in the market and the global economy.

Ever since the financial crisis of the late 2000s, companies have been busy raising capital but also increasing their debts. It did not help that the Federal Reserve slashed interest rates to help stimulate the economy.

Though nearly half of those surveyed said they prefer companies paying off their debts, 39 percent think that expanding is still the better choice, while 13 percent are of the opinion that share buybacks are the way to go. The preference for spending capital to grow is the lowest it has been since 2009. Companies are taking notice though, with corporate debt slowing down its growth to just 4.8 percent.

Global Worries

The debt is not all that fund managers are worried about. Many of the fund managers are very pessimistic about the growth of the global economy. Close to 60 percent of the respondents in the survey think that the world will experience a slowdown in GDP gains within the next 12 months. That is a worrying sign since the last time fund managers were this worried, it sparked the 2008 financial crisis.

Things are not all that bad though. Many respondents don’t think a recession is coming, with only 14 percent predicting negative growth. A majority think that the economy will see stagnation rather than a complete drop.

In a statement, Michael Hartnett, chief investment strategist at BofAML said

Investors remain bearish, with growth and profit expectations plummeting this month. Even so, their diagnosis is secular stagnation, not a recession, as fund managers are pricing in a dovish Fed and steeper yield curve.