There is currently a “dire level of investor pessimism” among fund managers after the opening six months of 2022 in which markets sold off and economic fundamentals weakened, the latest Bank of America Global Fund Manager Survey has found.
The survey, which polled 259 fund managers running a total of $722bn between 8 and 15 July, made for a downbeat read, showing that investors were growing increasingly negative on the economic outlook and corporate profitability.
At the same time, investors had been dropping their equity allocations and piling into cash.
Global growth optimism among the survey’s respondents has fallen to an all-time low: a net 79% of fund managers expect the global economy to weaken in the coming 12 months (up from a balance of 73% last month).
Most fund managers now expected the global economy to enter recession. A record high of 90% of investors saw a period of stagflation – or low growth combined with high inflation – ahead of us; just 1% were holding out hopes of a ‘Goldilocks’ scenario of above-trend growth and below-trend inflation.
During July, managers added to overweights in defensive sectors (utilities, consumer staples and healthcare) while going underweight late cyclicals (banks, energy and materials). They had been overweight late cyclicals for most of 2022, but have pulled away from these areas as the economic outlook starts to sour.
Indeed, a net 58% of asset allocators said they were taking lower than normal risk levels within their portfolios, a record low and even more pessimistic than their stance during the Global Financial Crisis (GFC).
Linked to this, the average cash balance had climbed from 5.6% last month to 6.1% today – the highest since October 2001. A net 50% of fund managers were now overweight cash, two standard deviations above its long-term average.
When it came to what fund managers wanted companies to do with their cash, most wanted businesses to strengthen their balance sheets by reducing debt, rather than increasing capex spending or returning cash to shareholders.
This came as the percentage of investors who expected company profits to deteriorate also reached an all-time high, surpassing the highs of the GFC and the COVID-19 pandemic.
