Investors Optimistic on Rebound: BofA Survey

Global investors polled in July were optimistic about a rebound in economic activity, according to the findings of BofA Global Research’s monthly fund manager survey, released Tuesday.

In July, a net 72% of fund managers looked for global growth to strengthen in the coming year, up from a net 61% with that view in June and compared to a net 38% with that view in May. As background, a net 2% looked for weaker growth in April. Also, this month a net 36% of those polled expected global growth “to get ‘a lot stronger,’ the highest figure recorded (going back to Oct ’94),” BofA Global Research says.

In July, 14% of portfolio managers looked for a V-shaped recovery versus a 64% looking for either a U-shaped or W-shaped recovery. This compared to 18% and 64% respectively last month. 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 again this month, with a net 37% of fund managers now looking for higher global CPI in the next 12 months, versus a net 21% with that view in June. In May and April, a net 10% of managers looked for lower global CPI.

Average cash balances stood at 4.9% in July versus 4.7% in June and 5.7% in May and 5.9% in April, which saw the highest cash levels since the 9/11 terrorist attack. In addition, allocation to cash edged down to a net 32% overweight this month versus a net 33% overweight in June and a net 44% overweight in May. 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 July, a net 5% of those polled were overweight global equities versus a net 6% overweight in June and compared to a net 16% underweight in May. April saw a net 27% underweight, which was the lowest allocation since March 2009.

This month, a net 31% of portfolio managers were underweight bonds versus a net 26% underweight in June and a net 13% underweight in May. In February, before the larger spread of COVID-19, a net 40% of managers were underweight bonds.

Global investors continued to take a positive view towards commodities, with a net 12% of managers now overweight, the highest reading since July 2011. In June, a net 7% of managers were overweight, versus a net 9% underweight in May and April.

On regional equity asset allocation, allocation to US stocks stood at a 21% overweight in July versus a net 22% overweight in June and a net 24% overweight in May. A net 16% of fund managers were overweight eurozone stocks versus a net 7% overweight in June and a stark improvement over the net 17% underweight seen in May, which was the lowest reading since July 2012. Allocation to emerging market equities saw renewed interest also, with managers holding a net 15% overweight this month, up from a net 12% overweight in June and compared to a net 1% underweight in May, which was the lowest reading since September 2018.

This month, portfolio managers had a net 3% underweight to Japanese equities, compared to a net 1% underweight in June and a net 9% underweight in May, while UK equity allocations showed managers with a net 30% underweight in July, compared to a net 29% underweight in June and a net 33% underweight in May.

COVID-19 uncertainty remains the top tail risk, with long technology stocks viewed as the most stretched trade. In July, the biggest “tail risks” feared by portfolio managers were: “COVID-19 second wave” (52% of those polled), “US election” (15%), “Credit Event” (11%), “Populist policies to end inequality” (8%).

Last month, the biggest concerns were: “Coronavirus second wave” (49% of those polled), “Permanently high unemployment” (15%), “Outcome of the 2020 U.S. Presidential election” (10%) and “Trade War” (9%).

In July, the top “most crowded” trades deemed by managers were: “Long U.S. tech” (74% of those polled, “Long gold” (11%), “Long cash” (6%) and “Long Corporate Bonds” (6%).

The top “most crowded trades” in June were: “Long US tech and growth stocks” (72% of those polled), “Long cash” (9%), “Long U.S. Treasuries” (6%) and “Long gold” (4%).

An overall total of 210 panellists, with $607 billion in assets under management, participated in the survey, taken July 2-9, 2020, BofA says 188 participants with $570bn AUM responded.

Colin Lambert

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