Commodity prices have soared over the last few months as the global economy moved closer to re-opening.
Bitcoin has been overtaken by commodities as the most crowded trade in June, according to Bank of America’s Global Fund Manager Survey. The latest survey data show that 26% of the respondents believe ‘long commodities’ is now the most crowded trade. The sharp switch from Bitcoin to commodities comes after the cryptocurrency tanked more than 30% between the middle of May till the end of the month. Earlier, 27% of the fund managers had sided with ‘Long bitcoin’ as the most crowded trade, now only 21% believe that to be the case.
Commodity cycle booming
Commodity prices have soared over the last few months as the global economy moved closer to re-opening. Demand has been increasing for materials, pushing prices of steel, copper, crude oil higher. Steel stocks have seen a significant rally as prices soared. Rates are expected to stay high with China cutting production for environmental reasons. Crude oil has also breached the $70 per barrel mark, hitting multi-month highs. “Allocation to commodities remained steady at net 27% overweight. The current allocation is 1.9 standard deviation above its long-term average,” BofA fund manager survey revealed.
Allocation to tech stocks increases
Additionally, the 224 fund managers with $667 billion worth of assets under management, said that technology stocks were back in favour. Investors had in May trimmed weightage in tech stocks by more than 8 basis points, in June the weights have been increased from 11% to 22%. The bet on tech stocks is not temporary. Fund managers, when asked what assets will be the best performing in the next 4 years, favoured a barbell approach of value stocks with 24% weight and tech stocks with 23% weight.
Apart from tech stocks, cyclicals are another theme playing out among global fund managers. “FMS are now significantly overweight cyclicals…with a net 30% overweight banks, a net 11% overweight energy and a net 23% overweight materials,” the report said. Meanwhile, defensives have been left out with 39% underweight utilities and a net 4% underweight staples.
Inflation only transitory
Talking about inflation, as many as 72% of the survey participants say inflation is transitory while only 23% say inflation is permanent. On the economic front, 48% of investors think the economy is mid-cycle now surpassing early-cycle. “Assuming “transitory inflation” consensus correct, “peak” in growth & profits expectations means investment cycle simply transitioning from early-cycle to mid-cycle,” BofA said.