Fund Managers Fear Monetary Policy — You Should Fear Them

When big money talks, most people listen.

I’m referring to fund managers responsible for millions and even billions of dollars. Using their experience, intelligence and expertise, they try to generate the highest risk-adjusted returns possible for their clients.

One way to see what global fund managers are thinking is to check out Bank of America Merrill Lynch’s (BoA) Global Fund Manager Survey.

Each month, BoA surveys around 300 global fund managers who look after more than US$600 billion.

For November 2017, one of the top three worries respondents had was that they feared a crash in global bond markets.

As reported by CNBC:

When asked to poses the biggest “tail risk”, or worry for the financial market, 22 percent of global investors considered the biggest risk to be a sharp drop in bonds.

That’s just below the 27 percent of respondents that fear mistake in monetary policy by the Federal Reserve or European Central Bank the most.

Just 13 percent were most worried about a “market structure” — generated flash crash.

Biggest Tail Risk For Global Investors

Source: Bank of America Merrill Lynch, November Fund Manager Survey

I wouldn’t follow the advice of fund managers too closely. Most managers might have legitimate concerns about high asset prices and the potential of a correction.

Still buying stocks

But that hasn’t stopped them from buying up stocks, bonds and alternative investments, regardless of the price. The Australian Financial Review writes:

‘…the findings from the latest survey of global fund managers by Bank of America Merrill Lynch give investors two standout choices.

One, is the record-high number of fund managers who think that stocks are overvalued right now, while the other is the record-high number of managers that keep on buying those stocks anyway.

Another key take-out from the closely watched survey was the drop-off in the number of fund managers looking to protect their portfolios from a major sell-off in the share market.

Global share markets have been on a tear over the past 12 months and so any strategy designed to help fund managers deal with a correction has been a waste of money.

Looks like a few managers have stopped playing that painful game, and yet, for contrarian investors, that’s a sign a sell-off is now not too far away.

So perhaps a more worrying thought than wrongly using monetary policy is fund managers irrational exuberance — knowing what they’re buying is overvalued and continuing to do it anyway.


Härje Ronngard,

Junior Analyst, Markets & Money

PS: Irrational investors — those buying when asset prices are already high — could cause some real problems. If they continue pushing the market higher, valuations might continue to rise until they simply, well, can’t. At that point, a correction could follow.

But there are ways to protect yourself from a falling market. For details, click here.

Harje Ronngard is a Junior Analyst at Markets and Money. With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation. It’s not good enough to be right on average when it comes to investing. The market is volatile and it only takes one bad day to ruin your portfolio. You don’t want to end up like the six foot man that drowned in the river that was five foot deep on average. It’s why Harje is constantly reminding investors of their downside risk here at Markets and Money. He does so by simply asking just two questions.  What is it worth? And how much does it cost? These two questions alone open up a world of investment opportunities which Harje shares with Markets and Money readers. Right now Harje is focused on managing research and investments over at the Legacy Portfolio. An investment publication designed to significantly grow investor’s wealth over time with deeply undervalued businesses. Harje also contributes his insights in Total Income, headed by income specialist Matt Hibbard. Harje loves cash-rich businesses, so he feels right at home amongst Matt’s high yielding income plays.

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