Survey of Merrill Financial Advisors Shows They Like Cash and Bonds
Nearly 400 financial advisers surveyed at Bank of America’s Merrill Lynch unit said they favored bonds and cash the most for investment portfolios, with stocks falling at a “distant third”, according to a report released Wednesday. Bonds as a percentage of portfolios jumped to 27% when the survey was conducted in late January and early February, from 24% a year earlier. The average cash allocation climbed to 10% from 7% a year ago, while equities fell to 57% from 62%. But advisers were not bearish on the long-term outlook for stocks, with their view for the next 12 months the most optimistic in the survey’s history. Nearly three-quarters (about 70%) anticipated “that the bear market will end in 1H or that the bear market has already ended,” the report said. The survey only started in 2017, but analysts led by Bank of America equity and quantitative strategist Savita Subramanian said bond allocation was at an all-time high for the survey, while shares were at an all-time high. Nearly two in five advisers (39%) said they “are leaning more toward bonds,” and less than one in five (18%) are leaning more toward stocks, according to the report. Given the excess cash generated in portfolios, 26% of advisors are considering buying stocks, up from 42% last year. Meanwhile, 29% intend to put the money into bonds and 30% “are happy to stay in cash”. Participating advisors – who average 17 years in the industry – favored value stocks over growth stocks, 78% to 12% (the widest margin ever). They also prefer to place their clients in small stocks (46% bullish) rather than large caps (39%) or mid caps (36%). The biggest risks to the stock market in 2023 are recession (18%), central bank policy mistakes (17%) and geopolitics (15%), the advisers said. A year ago, the main concern was inflation. By equity sector, advisors favored health care, energy and financials, and were the most bearish on consumer discretionary, real estate and technology. Investors might not want to bet against these three major industry groups this year. Bank of America said the top three favorite sectors have outperformed the bottom three by 17 percentage points on average each year since the survey began. -CNBC’s Michael Bloom contributed to this story.