Global fund managers are the most overweight to bonds since December 2023 as investors make a defensive rotation.
The monthly Bank of America Global Fund Manager Survey questioned 220 panellists with US$590 billion in assets under management between 2 and 8 August.
Overall fund manager sentiment, which is based on cash levels, equity allocations and economic growth expectations, dropped from 5.0 to 3.7 which Bank of America said was a seven-month low.
With this pessimism in mind, respondents are making defensive moves into bonds and cash and out of equities.
Allocations to bonds increased by 17 percentage points to a net 8 per cent overweight, the largest monthly increase since November 2023 and a reversal of a net 9 per cent underweight in the previous month.
Fund managers are now the most overweight to bonds since December 2023, while cash allocations rose by 12 percentage points to a net 6 per cent overweight. This means cash levels rose from 4.1 per cent to 4.3 per cent, the second consecutive monthly rise.
On the other hand, allocations to equities fell from a net 33 per cent overweight in July to a net 11 per cent overweight.
Some 59 per cent of respondents said they expect lower bond yields, up 14 percentage points from the previous month. This is the largest monthly rise in expectations since June 2009. A third of the respondents think that high grade will outperform high yield bonds.
An overwhelming majority (94 per cent) expect the first rate cut by the Federal Reserve to occur at the September meeting, with over a third expecting the central bank to make four or more rate cuts over the next 12 months.
Looking at macro expectations, the threat of a US recession is the top tail risk which replaced geopolitical conflict. Likely prompted by a brief market crash in early August, 39 per cent said they were concerned about a US recession, up from 18 per cent in July.
This was followed by geopolitical conflict at 25 per cent and higher inflation at 12 per cent.
Almost half (47 per cent) said they expect a weaker global economy in the next 12 months with respondents particularly despondent on growth in China, the bank said.
Over three-quarters of respondents said they expect to see a soft landing, rising from 68 per cent in the previous month, while the risk of “no landing” fell from 18 per cent to 8 per cent.
