Fund Managers Shower Love On American Stocks: 5 Top Picks

Global fund managers poured money into U.S. stocks in June for the first time in 15 months, encouraged by a compelling profit outlook. An upbeat labor market, uptick in consumer confidence and a marked improvement in service sector performance last month made investors bullish on U.S. stocks. On the contrary, emerging market and Eurozone stocks lost their charm due to rise in trade protectionism and interest rate hikes by the US. Federal Reserve.

Thus, investing in stocks with high domestic exposure in terms of revenue generation seems sensible at the moment.

Global Equity Investors Invest in U.S. Stocks

As per Bank of America (NYSE:BAC) Merrill Lynch’ June survey of 235 global fund managers with $684 billion of assets under management, U.S. stocks are now in focus. Almost two-third of them said that the United States has the best outlook for corporate profits, now at a 17-year high. The other regions, in particular, Eurozone and emerging markets have a net negative profit outlook.

Thanks to such a robust domestic profit outlook, equity investors have increased their allocation to American stocks by 16 percentage points, making them overweight for the first time in 15 months. And why not? The broader S&P 500 after hitting a series of highs in January was knocked back into correction territory in February. But, the broader index did bounce back later and is up 4.3% so far this year. In contrast, the pan-European Stoxx 600 index has fallen 0.4%.

Emerging Market Equities Out of Favor

Emerging markets are also losing their appeal compared to their U.S. counterparts. The survey showed that “emerging market equities allocation falls again after massive drop last month, down -5% to net 22% overweight & well off the April’18 high of 43% as investors sell emerging market equities to buy US equities.”

Possibility of a trade war between the United States and other countries affected emerging market equities. By the way, an imminent rate hike by the Fed doesn’t bode well for emerging market assets. Fund flow tracker EPFR Global’s report dated Jun 6 said that “with another hike in US interest rates expected this week; EPFR-tracked Emerging Markets Equity Funds posted their third consecutive outflow during the first week of June” (read more: Medical - Biomedical and Genetics industry’s estimated rally of 9%.

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Zacks Investment Research

Written By: Zacks Investment Research