NEW YORK (Dow Jones)--Merrill Lynch's new quarterly credit investor survey, taken Jan. 25 to Jan. 27, shows 76% of investors surveyed believe credit is overvalued, but more investors are overweight, 40%, than underweight, 25%.
Energy and telecom are sectors most favored by investment-grade investors, while high-yield buyers like industrials.
Merrill's new quarterly credit investor survey polled 133 investors with combined assets of more than $800 billion. That included 64 money managers, 35 hedge funds, 16 insurance companies, 11 banks and seven pension funds.
After a more than an 18-month rally, a net 58% of the investment-grade investors surveyed believe yield margins, or spreads, to Treasurys will be wider in 12 months. However, a net 28% believe spreads can tighten over the next three months.
Hedge funds, however, are more pessimistic, with a net 17% expecting them to widen sooner than the next 12 months. Their favored asset class is leveraged loans, followed by cash.
On a more optimistic note, 69% of hedge funds expected net cash inflows in the next three months, while in contrast, 53% of all survey participants expect net inflows over the same period, according to Merrill.
The Merrill survey included the volatile bonds of General Motors Corp. (GM) and Ford Motor Co. (F) as special topics. According to the poll, only 15% of investment-grade investors would be forced sellers of these bonds in the event of a downgrade to speculative grade by Moody's Investors Service, Standard & Poor's or Fitch Ratings.
S&P indicated last month that it is reassessing its stable outlook on GM and its General Motors Acceptance Corp. finance unit, which it had downgraded to triple-B-minus - its lowest investment-grade rating - last October. A change to a negative outlook would indicate a downgrade is likely down the road.
According to Merrill, 50% of investment-grade investors would sell auto bonds immediately after a downgrade to high-yield, while the other 50% would do so by month-end.
Investment-grade investors prefer to GMAC to GM, with 37% of them holding no GM debt.
In the high-yield area, portfolio managers overall mostly maintain a neutral-to-very-slight overweight position relative to their broad benchmarks. Managers of the smallest portfolios, those with $1 billion in assets or less, are more bullish, with 40% in overweight versus 31% in underweight. For larger accounts, just 17% are overweight and 30% underweight.
Most high-yield money managers - 82% - said credit spreads are too narrow, but only 35% expect them to widen over the next three months. However, 62% expect wider spreads within six months. |
