Global investors polled in June were cautiously optimistic about world growth, but wary that a second wave of COVID-19 could weigh on economic prospects, according to the findings of BofA Global Research’s monthly fund manager survey, released Tuesday.
In June, a net 61% of fund managers looked for global growth to strengthen in the coming year. This is up from a net 38% looking for strength in May and a net 2% looking for weaker growth in April.
Indeed, 35% of respondents looked for the global economy “to get ‘a lot stronger’, the highest figure recorded (going back to Oct ’94),” BofA Global Research said.
Nevertheless, “investors do not expect global manufacturing PMI to rise back above 50 before October”, the survey said.
The percentage of those looking for recession in the coming 12 months fell to a net 46% of those polled in June, versus the net 77% seen in May and the net 93% seen in June.
This month, 18% of managers looked for a V-shaped recovery versus 64% looking for a U-shaped or W-shaped recovery. In May, 75% of those polled looked for a U-shaped or W-shaped recovery and 10% anticipated a V-shaped recovery.
Inflation expectations rose markedly on the month, with a net 21% of fund managers now looking for higher global CPI in the next 12 months, versus May and April, where a net 10% of managers looked for lower global CPI.
Average cash balances fell to 4.7% in June, from 5.7% in May and 5.9% in April, which was the highest level since the 9/11 terrorist attack. The June decline was the largest monthly drop since August 2009 when the S&P 500 index rallied back above 1000 in the wake of the Global Financial Crisis, the survey said.
In addition, allocation to cash fell to a net 33% overweight this month, down from a net 44% overweight in May and a net 54% overweight in April, which was the highest since October 2008 and the second highest reading in the survey history.
In June, bonds fell modestly out of favour while investors dipped their toes into equities.
This month, a net 6% of managers were overweight stocks, the first net overweight since February 2020. In May, a net 16% of portfolio managers were underweight global stocks and a net 27% were underweight in April, which was the lowest allocation since March 2009.
At the same time however, the largest number of investors since 1998, a record net 78% of those polled, saw world stock markets as “overvalued” in June, the survey said.
This month, a net 26% of portfolio managers were underweight bonds, versus a net 13% underweight in May and a net 28% underweight in April. Before the larger spread of COVID-19, in February a net 40% of managers were underweight bonds.
Commodities saw a sharp turnabout, with a net 7% of managers currently overweight, versus a net 9% underweight in May and April.
On regional equity asset allocation, allocation to US stocks stood at a net 22% overweight in June, down from a net 24% overweight in May, but above the net 15% overweight seen in April.
In June, a net 7% of fund managers were overweight eurozone stocks, a stark improvement over the net 17% underweight seen in May, which was the lowest reading since July 2012.
In April, a net 12% of managers were underweight eurozone stocks.
Allocation to emerging market equities saw a rebound also, with managers holding a net 12% overweight this month, versus a net 1% underweight in May, which was the lowest reading since September 2018, and a net 6% overweight in April.
This month, portfolio managers had a net 1% underweight to Japanese equities, versus a net 9% underweight in May and a net 14% underweight in April.
UK equity allocations showed managers with a net 29% underweight in June compared to a net 33% underweight in May and a net 31% underweight in April.
This month, COVID-19 uncertainty was the top tail risk, with November US elections also back on the radar screen.
In June, the biggest “tail risks” feared by portfolio managers were: “Coronavirus second wave” (49% of those polled); “Permanently high unemployment” (15%); “Outcome of the 2020 US Presidential election” (10%); and “Trade War” (9%).
Last month, the biggest concerns were: “Coronavirus second wave” (52% of those polled); “Permanently high unemployment” (15%); “Break-up of the European Union” (11%); and “Systemic credit event” (8%).
In June, the top “most crowded” trades deemed by managers were: “Long US tech and growth stocks” (72% of those polled); “Long cash” (9%), “Long US Treasuries” (6%); and “Long gold” (4%).
The top “most crowded” trades in May were: “Long US tech and growth stocks” (60% of those polled); “Long cash” (14%); “Long gold” (10%); and “Long US dollar” (7%).
An overall total of 212 panelists, with $598 billion in assets under management, participated in the BofA Global Research fund manager survey, taken June 5-11, 2020. “190 participants with $560bn AUM responded to the Global FMS questions and 87 participants with $208bn AUM responded to the Regional FMS questions,” BofA said.