BofA’s Fund Manager Survey Cites Only One Reason To Be Bearish
The only reason to be bearish is that there's no reason to be bearish.
That's how BofA Securities sums up the all-time high sentiment in its Global Fund Manager Survey for February.
91% of the 225 fund managers overseeing $645-billion assets now expect stronger economic growth, according to the survey conducted between Feb. 5 and 11. "For the first time since January 2020, investors want CIOs to increase capex rather than improve balance sheet."
Allocation to emerging market equities, which surged to the highest ever during the previous round in January, saw a moderate pullback; conviction on developed economies like the U.K. rose. Still, 51% of the fund managers surveyed expect emerging markets to be the biggest outperforming asset class in 2021, followed by oil and the S&P 500.
Overseas investors continue to pile into Indian equities as sentiment has been buoyant after the budget. The S&P BSE Sensex and the NSE Nifty 50 are up nearly 12% for the month, their best February gains since 1996. Foreign portfolio investors have pumped about Rs 22,000 crore into India's equity markets in the last 12 sessions.
Fund Managers also continue to deploy more cash into equities. Cash levels are now down to 3.8%—the lowest level since March 2013 while allocation to stocks and commodities is at the highest level since February 2011.
28% of the fund managers continue to see the Covid-19 vaccine rollout as the biggest tail risk. Some of the other risks include a tantrum in the bond market (25%), higher-than-expected inflation (24%) and a bubble on Wall Street (13%).
Here are five key takeaways from the survey:
A V-Shaped Recovery
34% of the fund managers surveyed are now expecting a V-shaped recovery in the global economy. This is the highest level in at least nine months. In May 2020, the figure stood at only 10%.
84% of the fund managers expect global profits to improve over the next 12 months, down from 87% in January.
U.S. Equities In A Bubble?
The S&P 500 has surged nearly 75% from the lows of March last year, while the Dow Jones has jumped 70%. The tech-heavy Nasdaq has outperformed its peers, doubling during the period. The three benchmarks are trading close to their all-time highs.
53% of the fund managers surveyed believe that equity markets in the U.S. are trading in a late-stage bull market, while 27% call it an early stage bull market. 13% of the participants term it a bubble.
The survey shows that fund managers taking "higher-than-normal" risk is at a record high. The level for February stood at 25%.
Global Equity Allocation
Allocation to global equities rose to 61%, the second highest on record and the highest since the February 2011. An allocation of over 50% indicates an extremely bullish stance, according to the survey.
Fund managers added exposure to technology, healthcare and U.S. stocks in February ,while exposure to commodities and staples remained higher. "The January wobble caused investors to seek 'safety of growth' and bumped up exposure to tech, healthcare and U.S.," the survey said.
Although fund managers remain bullish on emerging markets, they trimmed their exposure. They also cut exposure to bonds, discretionary and energy stocks.
Other Key Highlights
- 82% of the participants now expect a steeper yield curve; down from 83% in January—the level is higher than the 2008 Lehman Bankruptcy, 2013 fed taper tantrum and 2016 U.S. Presidential elections.
- 86% of fund managers expect higher inflation in the next 12 months, down from 92% in January.
- A record 31% of fund managers continue to expect that small caps will outperform large caps in the next 12 months.
- 8% of the participants see gold as undervalued—the first time since June 2020. The last instance of this had seen the yellow metal rally 22% in the next two months.
- Long tech remains the most crowded trade at 35%, followed by long bitcoin (27%), short U.S. dollar and long ESG (13% each).