According to a September survey of global and regional fund managers released last week by Merrill Lynch Global Research, managers have not significantly changed their portfolios despite growing risk averseness in the backdrop of the credit market bloodbath seeping into equity market fundamentals. Global managers currently have more than 4.3% of their portfolio assets in cash, which indicates an acute increase in risk-aversion as market liquidity has worsened, according to the survey. Merrill's Fund Manager Survey Risk Indicator, standing at 33 for September, likewise demonstrates that managers are significantly shortening their investment horizon. A score above 42 suggests risk appetite and liquidity are above normal, and a score below 42 suggests the opposite.

Yet despite the deterioration of the credit markets and the attendant manager concerns, managers have not abandoned their preference for stocks over bonds, with the mean equity weighting slipping to 53%, only a three-percentage-point drop since July. Additionally, the survey results do not indicate a significant move to cash positions over the summer. "Investors say they are worried about business cycle risk, but asset allocators have yet to start reshaping their portfolios for a different environment," stated David Bowers, an independent consultant to Merrill Lynch who analyzed the survey results. "This begs the question of whether they are in denial about the possible extent of this downturn.

Chance favors only the prepared mind.