Seventy-five percent of fund managers do not expect the Federal Reserve to increase the Fed funds rate until the second half of 2010 or later, according to the November BoA Merrill Lynch survey of 218 fund managers with $534 billion in assets under management. Twenty percent think this might not happen until 2011.

While 66% believe that the existing monetary policy is “about right,” 47% fear that inflation could rise within the next 12 months, up from 39% who thought so in October. Thus, 25% of the panel is overweight commodities as a hedge against inflation, up from 11% in October. Fifty-three percent is overweight emerging markets, up from 46% the month before.

“Investors see inflation as a greater risk than deflation and are hedging that risk with overweight positions in emerging markets and commodities, and an underweight position in the U.S. dollar,” fixed income and utilities, said Michael Hartnett, chief global equity strategist at BoA Merrill Lynch Global Research. “We are seeing a vivid and extreme bent towards high-beta markets, such as Russia, and movement away from lower beta markets, such as Chile and Malaysia.”

Fund managers also expressed a higher tolerance for risk, with only a net 1% saying they are taking lower than normal risk, down from a net 16% in September.

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