Global investors polled in May were less pessimistic about world growth prospects than in prior months, but remained more bearish than bullish overall, according to the findings of Bank of America Global Research’s monthly fund manager survey, released Tuesday.
In May, a net 38% of fund managers – roughly 65% looked for stronger growth vs 28% weaker growth – looked for global growth to strengthen in the coming year. This compared to a net 2% looking for weaker growth in April and a net 49% looking for weaker growth in March.
This month’s reading is the highest since January 2018, the survey said.
As background, in the April survey, BoA Global Research showed that a record net 93% of portfolio managers looked for recession, or two consecutive negative quarters of GDP, in the next 12 months. This broke the prior record of a net 86% looking for recession in March 2009, when the S&P 500 posted a low of 666.79 in the wake of the financial crisis.
Despite modestly reduced fears this month, investors remained uncertain about world growth prospects going forward. A net 75% of those polled in May looked for a U-shaped or W-shaped recovery and only 10% anticipated a V-shaped recovery.
Inflation expectations were unchanged on the month, with a net 10% of fund managers still looking for lower global CPI in the next 12 months. This compared with a net 31% looking for lower global inflation in March. As background, in February, a net 40% of managers looked for global inflation to rise in the next 12 months.
Average cash balances fell to 5.7% in May from 5.9% in April (highest level since 9/11 terrorist attack) but remained elevated, the survey said. Average cash balances stood at 5.1% in March and 4.0% in February.
In addition, allocation to cash fell to a net 44% overweight this month, down from a net 54% overweight in April, which was the highest since October 2008 and the second highest reading in the survey history. May cash levels compared to a net 41% overweight in March and a net 9% overweight in February.
This month, managers favoured bonds, but took a cautious look at equities, which continued to recover. A net 68% of those polled in May saw the equity rebound from the March lows as a bear market rally, while a net 25% saw a bull market rally.
In May, a net 16% of portfolio managers were underweight global stocks, compared to a net 27% underweight in April, which was the lowest allocation since March 2009. To show the stark turnabout in investor sentiment as COVID-19 became the chief topic of conversation, in March, a net 2% of fund managers were underweight global equities and in February, a net 33% of fund managers were overweight global equities.
This month, a net 13% of portfolio managers were underweight bonds, the highest allocation to bonds since July 2009. In contrast, a net 28% of portfolio managers were underweight bonds in April and March versus a net 40% underweight in February.
In May, investors again had a net 9% underweight to commodities versus a net 6% underweight in March. May/April’s underweight was the lowest reading since September 2018 and a sharp contrast to the net 10% overweight seen in January.
On regional equity asset allocation, the United States was the sole net overweight.
Allocation to US stocks stood at a net 24% overweight in May, versus a net 15% overweight in April and a net 3% overweight in March.
In May, a net 17% of fund managers were underweight eurozone stocks, the lowest reading since July 2012. In April and March, a net 12% of managers and a net 7% of managers, respectively, were underweight eurozone stocks.
Allocation to emerging market equities fell to a net 1% underweight in May, the lowest reading since September 2018. Investors had a net 6% overweight to global emerging market equities in April and a net 17% overweight in March.
This month, portfolio managers had a net 9% underweight to Japanese equities, versus a net 14% underweight in April and a net 16% underweight in March.
UK equity allocations showed managers with a net 33% underweight on the month, compared to a net 31% underweight in April and a net 21% underweight in March.
This month, COVID-19 uncertainty again overshadowed all other fears, even as new concerns emerged.
In May, the biggest “tail risks” feared by portfolio managers were: “Coronavirus second wave” (52% of those polled); “Permanently high unemployment” (15%); “Break-up of the European Union” (11%); and “Systemic credit event” (8%).
Last month, the biggest concerns were: “Coronavirus second wave” (57% of those polled); “Systemic credit event” (30%); “V-shaped recovery” (9%); and “Outcome of 2020 US Presidential election” (2%).
In May, the top “most crowded” trades deemed by managers were: “Long US tech and growth stocks” (60% of those polled); “Long cash” (14%); “Long gold” (10%); and “Long US dollar” (7%).
The top “most crowded” trades in April were: “Long US Treasuries” (31% of those polled); “Long cash” (20%); “Long US dollar” (18%); and “Long US tech and growth stocks” (17%).
An overall total of 223 panelists, with $651 billion in assets under management, participated in the BofA Global Research fund manager survey, taken May 7-14, 2020. “194 participants with $591bn AUM responded to the Global FMS questions and 86 participants with $176bn AUM responded to the Regional FMS questions,” BofA said.