Global investors polled in September remained upbeat about world growth prospects and bullish towards equities, according to the findings of BofA Global Research’s monthly fund manager survey.
This month, a net 84% of fund managers looked for global growth to strengthen in the coming year, the highest level since September 2003. This compared with a net 79% and a net 72% with that view in August and July, respectively. Back in April, as COVID-19 jitters were increasing, a net 2% of those polled looked for weaker global economic growth.
In addition, a net 40% of those polled this month look for the global economy to get “‘a lot stronger,’ the highest number ever,” the survey says.
In September, a net 20% of portfolio managers looked for a V-shaped recovery, versus a net 61% looking for either a U-shaped or W-shaped recovery. In August, a net 17% of portfolio managers looked for a V-shaped recovery, versus a net 68% looking for either a U-shaped or W-shaped recovery.
Inflation expectations rose yet again this month, with a net 66% of fund managers looking for higher global CPI in the next 12 months. This is up from a net 52% with that view in August and a net 37% with that view in July.
Average cash balances held at 4.8% in September, versus 4.6% in August and 4.9% in July. As a point of comparison, in April, cash balances stood at 5.9%, which was the highest level since the 9/11 terrorist attack. Allocation to cash declined to a net 25% overweight this month, the lowest level since February 2020. This compared to a net 26% overweight in August and a net 32% overweight in July.
April’s allocation, at a net 54% overweight, was the highest since October 2008 and the second highest reading in the survey history.
On overall asset allocation, in September, a net 18% of those polled were overweight global equities versus a net 12% overweight in August and a net 5% overweight in July. April saw a net 27% underweight, which was the lowest allocation since March 2009. This month, a net 35% of portfolio managers were underweight bonds, versus a net 38% underweight in August and a net 31% underweight in July. A net 5% of managers were overweight commodities, down from the net 12% overweight seen in August and July, which were the highest readings since July 2011.
On regional equity asset allocation, global investors added to US stock holdings and trimmed holdings in European and emerging markets. Allocation to US stocks stood at a net 18% overweight in September, compared to a net 16% overweight in August and a net 21% overweight in July.
In September, a net 22% of fund managers were overweight Eurozone stocks, down from a net 33% overweight in August. In July, a net 16% of managers were overweight eurozone stocks. Allocation to global emerging market equities saw managers with a net 16% overweight, down from a net 26% overweight in August and nearly back at the net 15% overweight seen in July. Portfolio managers had a net 4% underweight to Japanese equities, compared to a net 12% underweight in August and a net 3% underweight in July. UK equity allocations showed managers with a net 35% underweight in September, compared to a net 37% underweight in August and a net 30% underweight in July.
In the debate about what might lead to higher yields globally, a net 41% of those polled said that a COVID-19 vaccine would be needed, while a net 37% of managers said that inflation would have to rise more markedly. Only 11% of those polled saw 10-year US Treasury yields breaking out of a 50-100 basis point range by year-end.
A net 32% of portfolio managers looked for a credible COVID-19 vaccine by Q4 2020, while a net 39% expected such a vaccine by Q1 2021.
COVID-19 uncertainty remained the top tail risk for the seventh straight month, with long technology stocks still seen as the most stretched trade. In September, the biggest “tail risks” feared by portfolio managers were: “COVID-19 second wave” (30% of those polled), “Tech bubble” (22%), “US election” (18%), “US-China trade war” (12%), and a (sovereign or corporate) “Credit Event” (9%).
Last month, the biggest concerns were: “COVID-19 second wave” (35% of those polled), “US-China trade war” (19%), “US election” (14%), “Credit Event” (13%) and “Populism (redistribution policies)” (9%).
In response to a question about the U.S. election, four out of five investors polled said that a “flip” in the US Senate would be “risk off.”
In September, the top “most crowded” trades deemed by managers were” “Long US tech” (80% of those polled), “Long gold” (7%), “Short US dollar” (6%) and “Long Corporate Bonds” (6%).
The top “most crowded” trades in August were: “Long US tech” (59% of those polled), “Long gold” (23%), “Long Corporate Bonds” (8%), “Long Cash” (4%) and “Short USD” (4%).
An overall total of 224 panellists, with $646 billion in assets under management, participated in the BofA Global Research fund manager survey, taken September 3-10, 2020. “199 participants with $601bn AUM responded to the Global FMS questions and 90 participants with $181bn AUM responded to the Regional FMS questions,” BofA Global says.