Global fund managers continue to remain bullish on equities with a net 55% overweight on the asset class, said Bank of America’s (BofA) Global Fund Manager Survey. The monthly survey by BofA, where 329 CIOs, portfolio managers, and equity strategists participated, showed that a majority of investors believe global inflation is still transitory and not permanent. Even though the US Federal Reserve has hinted at a faster than expected tightening of policy measures, fund managers have maintained their overweight position in equities. However, they have moved towards banks and commodities while trimming their allocation in technology to the lowest since December of 2008.
Bullish on stocks
BofA’s survey highlighted that 55% of the fund managers are net overweight on equities. In geographical classification, 35% are overweight on Eurozone equities and 5% on US stocks. Emerging markets and UK stocks are underweight positions, the survey showed. In sectoral terms, Banks have taken the lead with allocation towards lenders sitting at 41%, up 21% from the previous month, closing in on October 2017 all-time highs. “Assets were reallocated to cyclicals on a shift to global reopening trades this month,” BofA said in the note. Allocation to commodities reached its highest at 31%, a strong 12% on-month increase.
Interestingly, investors have reduced their allocation to tech stocks as an interest rate hike by the US Federal Reserve keeps them vary. “Investors have gotten more cyclical (i.e. banks, materials) relative to history while at the same time very underweight assets that are vulnerable to interest rate hikes that are bonds, tech, EM,” BofA said. Bonds are the most bearish trade with 77% underweight. Average cash positions are at 5%, according to the latest survey, down from 5.1% in the previous month.
Inflation only transitory
Inflation, which was seen as one of the biggest tail risk by global fund managers a few months ago, is now seen as transitory by a majority. 56% of the surveyed investment professionals believe inflation is transitory and 36% believe it to be permanent. “FMS investors think inflation is going to peak with a net 48% expecting lower CPI, the most since February of 2009,” BofA said. The survey showed that investors who expect lower global CPI in the next 12 months rose 15ppt on-month basis to net 48%, the highest since February 2009.
Investors now believe hawkish central bank rate hikes could be the biggest tail risk. Most fund managers, surveyed by BofA believe that the US Federal Reserve will step in to fight inflation and hike interest rates by mid-April this year. On average investors are betting on 3 rate hikes by the end of 2022.