Global fund managers bullish amid soft landing consensus

Bank of America fund management asset allocation

25 March 2024
| By Staff |
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Growth expectations are at a two-year high for global fund managers, with the majority believing a recession is “unlikely” over the next year, Bank of America’s (BofA) latest global Fund Manager Survey (FMS) has revealed.

Of the 226 respondents in BofA’s March survey, a “soft” landing remains the consensus among 62 per cent, while almost a quarter (23 per cent) believe in “no” landing, up from 5 per cent in October 2023.

Some 11 per cent of fund managers still foresee a “hard” landing, although this is down from the 30 per cent of respondents who were sitting in this pool only in Q4 last year.

According to BofA, fund manager sentiment, which is at its most bullish since January 2022, has been front-run by higher stock prices.

Namely, “macro bullishness” drove investors’ equity allocation to net 28 per cent overweight, its highest since February 2022, while allocation to cash fell slightly to net 5 per cent overweight.

“On a relative basis, investors are the most overweight equities versus cash since Nov’21,” the bank said in its report.

Also for the first time since January 2022, respondents were positive on global profit growth, with net 7 per cent of investors expecting profits to improve. Meanwhile, a quarter of investors expressed a desire for companies to prioritise returning cash to shareholders, its peak since 2015.

Noting that global fund managers are occupying “bullish but not yet extreme bullish” territory, BofA’s Bull & Bear Indicator now reads at 6.5 on the back of a tick up in average cash levels of FMS investors to 4.4 per cent from 4.2 per cent of AUM.

The bank also revealed that FMS “risk appetite” is at the highest it has been since November 2021, characterised by expectations for small caps to outperform large caps, opposite to investor sentiment in February.

Where are fund managers moving their money?

The biggest month-on-month shift in allocation was into emerging market (EM) stocks, the greatest jump since 2017, now net 16 per cent overweight.

This, BofA said, was at the expense of US, tech and discretionary, which lost the most since 2015. Namely, US equity allocations hit a five-month low at 8 per cent overweight.

Investors also showed a preference for Eurozone stocks, the biggest jump for the asset class since 2020, spiking 24 percentage points month-on-month to net 14 per cent overweight.

Looking at the most crowded trades in March, the “long Magnificent Seven” occupied the top of the ladder at 58 per cent, followed by short China equities (14 per cent), long Japan equities (13 per cent), long bitcoin (10 per cent) and long cash (3 per cent).

Moreover, 40 per cent of respondents agreed that AI stocks are in a bubble, while allocation to technology dropped 10 percentage points to net 26 per cent overweight.

“That said, FMS investors have been overweight tech for the past 12 months (last month’s allocation had been the highest since Aug’20),” BofA added.

 

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