Parsing our investor poll.

By Tobias Levkovich, Chief US Equity Strategist July 22, 2011 03:57 PM

It is always interesting to look at investor survey work since it tends to provide some quantitative backdrop to the qualitative sense one gets discussing portfolios and markets with fund managers. Our latest data gathered earlier in the month from about 125 mutual, pension and hedge fund professionals argue that risk aversion has not truly come out in full force despite general economic and political concerns. For instance, while cash holdings have ticked up from about 6% of assets under management in April to over 7.5% currently, that is far less than the 11% level experienced last July when economic double-dip fears raged.

Investors still plan to allocate a large portion of their cash to the stock market and also have a clear preference for US equities. To some degree, this may reflect deep anxiety about Europe, which may be contributing to positive feelings towards the greenback. Indeed, the dollar bullishness reading is the highest since we began surveying clients on the issue two years ago, with 66% of respondents indicating they expect the US dollar to strengthen by year end.

Government policy mistakes are by far the biggest risk that investors see to markets; over 40 percent list it as a top concern, outweighing other issues like real estate woes, geopolitics, earnings or inflation. Despite this data, there is slightly more willingness to buy small caps over large caps, indicating risk tolerance, even as margin trends are indicating a peak which usually supports a shift into large caps. Most fascinating is that the majority of investors think a 20% rally is more likely than a 20% pullback, possibly reflecting the view if things get somewhat bad, one should anticipate a QE3 to provide new market support.

When queried about a new recession in 2012, investors strongly sided with no new recession, which we suspect influences the view of the majority that President Obama will get re-elected next year. Yet, few anticipate a big improvement in the unemployment rate and fewer consider any strong recovery in jobs by year end.

When it comes to the broad market, investors still foresee S&P 500 market upside, but the weighted average year-end target of 1369 has slipped somewhat since January. The clear majority of investors foresee EPS growth of 11%-15% this year, which is a bit below the sell-side, bottom-up consensus of near 16% and Citi's view of just under 15%. In addition, almost 60% of investors think the Fed will not raise rates until 2H12 and more than 60% think that 10-year Treasury yields will close out 2011 between 3.0% and 3.5%.

Note: This post is adapted from a Citi North America Equity Strategy note, "Monday Morning Musings: Surveying an Uncertain Landscape," published on July 15, 2011.