Winter is giving way (reluctantly) to spring so we thought we'd update our sentiment indicator to see if the good weather was encouraging allocators to feel more upbeat.

We compiled the responses and as far as equities go, they definitely are.

Overall 56 per cent of the allocators we polled were positive about equities as a whole. This compares to just 33 per cent being positive at the turn of the year, when the plurality sentiment was 38 per cent negative.

One of the key drivers for this positivity towards equities appears to be the decreasing prospects of the 'hard landing' scenario.

Indeed at the turn of the year, the majority of allocators were negative towards US and European equities but these have now switched to neutral - meaning there are no equity regions which are negative towards as majority or as a plurality.

Allocators are most bullish towards UK smaller companies, where 70 per cent are positive, up 20 percentage points since the last time we checked. 

This contrasts to the sentiment to UK equities more broadly which has actually soured somewhat since December - falling from 54 per cent positive to 41 per cent positive.

The team at Premier Miton informed us that Britain’s smaller companies look attractive because they’re standing on big valuation discounts, while fundamentals remain intact. 

Similarly, Liontrust told us UK small-caps appear cheap not only when compared to their domestic large-cap counterparts, but also to other markets.

Abrdn’s MPS team said their analysis showed smaller companies tend to underperform going into a recession, before outperforming shortly after. This view is clearly translating into action, as we reported that they’ve recently bought into two small-cap funds in particular: Royal London UK Smaller Companies and Janus Henderson European Smaller Companies.

As it stands, UK small-cap funds make up but a small proportion of allocators portfolios. Only one quarter of firms have any defined separate exposure to the asset class at all, and even that hovers around 1 per cent. 

But if feelings translate into end product, then perhaps we may see something of a rush into companies outside of the main FTSE indices, though liquidity may hamper the progress of the asset class. 

Treading carefully

Elsewhere, 57 per cent of the DFMs we polled are neutral to European equities with 28 per cent negative, which is a marked improvement from last time, where 45 per cent were negative. 

Indeed Charles Stanley is one of those to have neutralised its underweight position to Europe. This is because they are considering a relatively benign inflation outlook which should open the door for earlier rate cuts.

As far as US equities are concerned, sentiment was 54 per cent negative at the turn of the year but is now 63 per cent neutral.

Evelyn Partners is one of the allocators which has swung from negative all the way to positive - albeit marginally.

Rob Clarry, from the company's investment strategy team, said that while the rally of the magnificent seven looked overdone, there was scope for this rally to broaden out, so he was favouring positions away from market-cap weighted benchmarks.

Liontrust agreed, saying there was value to be found beneath the tech giants and pointing out that the US economy was in "relatively solid shape".

This is not to say everybody is too chipper, however. The team at LGIM are treading carefully with respect to the wider macro environment that surrounds equities. 

“While the outlook for the global economy has improved over recent months, market pricing has adjusted upwards to reflect this and continues to discount scenarios that don’t fit the optimistic soft landing narrative,” said James Giblin, a fund manager on LGIM's multi-asset team.

“Our view is that the trifecta of inflation falling back to target and staying there, central banks steadily easing monetary policy and growth moving back towards or above trend levels is difficult to achieve - the risks are skewed to the downside.”

Indeed the biggest question in markets right now is the pace of rate cuts, and so sentiment may swing wildly in the months to come.