Retail enthusiasm for equities has dipped in early 2025, according to Bank of America, after ending the year on a bullish note.
The latest monthly Global Fund Manager Survey found retail sentiment was more bearish compared to their institutional fund manager peers.
Institutional equity allocations, as stated by the survey respondents, stood at a net 41 per cent of fund managers, down slightly from 49 per cent in December.
Equities were the preferred asset class among respondents compared to a 20 per cent underweight to fixed income – the lowest since October 2022 – and 11 per cent underweight to cash. Cash allocations were unchanged in January at 3.9 per cent, the lowest level since June 2021.
Allocations to US equities, in particular, had surged at the end of 2024 thanks to the election of US President Donald Trump to a net 36 per cent overweight, but this reduced in January to a net 19 per cent overweight with allocations rotating into eurozone stocks instead.
Some 27 per cent said US equities will be the best-performing asset class in 2025, followed by 21 per cent who favoured global equities.
However, Bank of America contrasted the institutional sentiment with retail sentiment to equities as demonstrated by the American Association of Individual Investors (AAII).
This found optimism among retail investors “is unusually low” and expectations that stock prices will rise over the next six months stand at 25.4 per cent, down from 37.8 per cent at the end of 2024. On the flip side, 40.6 per cent of retail investors said they expected stock prices would fall over the same period, up from 34.1 per cent.
Overall fund manager sentiment is 6.1, down from 7.0 in December, and is based on cash levels, equity allocations and economic growth expectations. The dip demonstrates the “December froth” has been removed, it said.
The biggest tail risk was identified as inflation causing the Federal Reserve to hike rates which have risen from 37 per cent to 41 per cent. In December, this had been the largest tail risk in conjunction with the threat of a recessionary trade war, but the trade war risk has since declined from 37 per cent to 28 per cent in January.
The monthly survey questioned 214 panellists with $576 billion in assets under management.
