Bank of America Corp. (NYSE: BAC) is out with its so-called RIC-Report for its clients. There is good news for equity investors, but not such good news for investors in municipal bonds, corporate credit, and even gold. Now that markets have improved drastically, the report is urging investors to be a little more picky about what they invest in. Its four spring investment ideas are including Japanese equities, US housing, technology and copper. Central bank liquidity has soared from $8 trillion to $21 trillion over the past six years and BofA noted that the liquidity tap is still flowing.
The report says, “Some of the most loved asset classes of recent years are now facing significant obstacles in 2013 and beyond. In short, munis may be vulnerable to a cap on interest exemption, higher interest rates are a headwind for corporate credit, and gold could suffer as risk appetite improves.”
The RIC report shows the positioning as very solid for equities despite the bounce. It shows that long-only equity funds have seen close to $550 billion worth of outflows since 2006. The firm’s US equity and quant strategist, Savita Subramanian, noted that pessimism on equities remains at extreme levels relative to history with the Sell Side Indicator down to 46.7 for the first time in seven months in March. Investors may want to pay attention here: When that indicator has historically been below 50, the total returns for stocks have been positive over the following 12 months. How positive is why it is impressive. BofA noted that stocks have performed with a median return of 30% over the period.
The March 12 RIC Report also showed that the consensus expectation for 2013 earnings growth for global equities is at a solid 10%. It even noted, “Even if equities do not replicate their 2012 returns this year, relative to other asset classes, we continue to forecast stocks will offer the most attractive returns in 2013, particularly on an inflation adjusted basis. For 2013, BofA Merrill Lynch Global Research continues to forecast regional equity returns of 10-20%; US, EU and EM credit returns of 2-8%; and G4 government bond returns of -2-2%.”
It said that the firm’s commodity strategists lowered their 2013 and 2014 average gold price forecasts to $1,680 and $1,838, respectively. That will not be good for the SPDR Gold Trust (NYSEMKT: GLD). The team does not expect that gold will reach their $2,000 price target until 2014. Copper is different, and strategist Francisco Blanch sees a small supply deficit in copper this year with exposure noted in miners like Freeport-McMoRan Copper and Gold (NYSE: FCX).
The firm’s Japan equity strategist is Naoki Kamiyama and he has now revised his target higher for the TOPIX to 1,250 from a previous 1,050 and that implies 20% or so upside from current levels. That would translate to good news for the iShares MSCI Japan Index (NYSEMKT: EWJ) ETF.
BofA now expects that US home prices will rise by 8% in 2013.
Tech has lagged other sectors this year but BofA’s RIC Report puts technology as the firm’s top pick across size segments with attractive valuations, clean balance sheets, cash deployment opportunities and foreign exposure. Its top side-bar sectors are internet, semiconductor, components and connectors, and software.