Fund managers run highest cash levels since 9/11
The latest Bank of America global fund manager survey finds that investors have been de-risking portfolios amid fears of policy hawks and recession.
Fund managers were hoarding cash in May as worries about hawkish central banks, lacklustre economic growth and the Russia/Ukraine war continued to hammer sentiment.
Describing the mood this month as “extremely bearish”, the survey found cash levels among professional asset allocators had surged to 6.1% in recent weeks as investors dialled down risk in their portfolios.
Current cash levels rose from 5.5% in April and were now at a 20-year high – the highest since the attack on the World Trade Center in September 2001.
When asked what level of risk they were currently taking in portfolios, a net 49% said it was lower than normal. This was a 14 percentage point change on last month, taking risk appetite to its lowest since December 2008.
The declining sentiment came as fund managers feared a combination of factors such as rising inflation, rate hikes and the conflict in Ukraine could derail global growth.
A net 72% of managers expected the economy to weaken over the coming 12 months, which was the lowest growth expectations since the survey started in 1995.
Indeed, 77% of fund managers now expected ‘stagflation’ to hit the global economy – the highest reading since August 2008. Stagflation, or below-growth and above-trend inflation, was seen as the harshest of economic climates and one that would create a significant headwind for markets.
Just 17% thought the economy was heading into ‘boom’ conditions of above-trend growth and inflation – the lowest since November 2020 and down from 30% last month. Expectations of ‘Goldilocks’ conditions (above-trend growth and below-trend inflation) or a state of below-trend growth and inflation were flat at 1% each.
Concern over the health of the global economy was apparent when fund managers were asked what they see as the biggest tail risk in the market at the moment. Some 27% cited ‘global recession’ as their main worry, an increase on the number highlighting this concern in April. This put it in second place, down from first last month.
The survey polled 288 participants with combined assets under management of $872bn between 6 and 12 May 2022.
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