Fund managers preserving cash, says BoFA survey

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Published: April 15, 2020 2:15 AM

Even the recovery from the crisis will take a while to improve as 52% believe economic recovery from Covid-19 shock will be U-shaped, 22% say it will be W-shaped and just 15% say the recovery will be V-shaped.

While 93% of FMS investors believe there will be a recession (two consecutive quarters of GDP decline) in the next twelve months.While 93% of FMS investors believe there will be a recession (two consecutive quarters of GDP decline) in the next twelve months.

Despite the beating taken by equities across the globe, the April Global Fund Manager Survey (FMS) by BoFA suggests that fund managers are preserving cash. The latest survey shows that allocation to cash jumped to 5.9% from 5.1% – highest level since 9/11 terrorist attacks. While 93% of FMS investors believe there will be a recession (two consecutive quarters of GDP decline) in the next twelve months.

Even the recovery from the crisis will take a while to improve as 52% believe economic recovery from COVID-19 shock will be U-shaped, 22% say it will be W-shaped and just 15% say the recovery will be V-shaped. The survey period was from April 1 to 7, 2020. An overall total of 207 panelists with $597 billion assets under management participated in the survey. Of the total, 183 participants with $545-bn AUM responded to the Global FMS questions and 83 participants with $162-bn AUM responded to the Regional FMS questions.

April’s Fund Manager Survey shows a rare dichotomy between GDP and EPS expectations. FMS investors think global GDP cuts are largely over, but global EPS cuts are just beginning as net 63% believe profits will deteriorate in the next 12 months. In such a situation, FMS investors want to see corporations improve balance sheets. “Net 5% of FMS investors think corporates should return cash to shareholders via buybacks, dividends or M&A,” said the survey.

Entrenched recession concerns lead FMS investors to slash exposure to cyclical assets and rotate into defensive assets this month. Allocation to global equities plummeted 29 percentage points to 27% month-on-month, lowest since March 2009. Current allocation is below its long-term average, says the survey. While the allocation to US equities increased in April, the allocation to Eurozone and Emerging Markets came down. “FMS investors continue to own growth (technology), increase their exposure to defensives (healthcare, staples) and slash allocations to sectors geared to cyclical growth (energy, resources, banks),” said the survey.

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