Asset allocators around the globe are expecting economic growth, inflation and corporate profits to climb over the months ahead, leading to confidence that risk assets will continue to perform strongly, a closely watched survey has found. 
The April edition of the Bank of America Global Fund Manager Survey discovered that investor sentiment appears to be “as boom as it gets” thanks to high expectations that the global economy will soon start to rebound from 2020’s coronavirus crisis.
The survey, which polled 177 fund managers with total assets of £530bn between 6 and 12 April 2021, concluded that both macro and market optimism remains “very high” as concerns about the pandemic ease amid the vaccine rollout.
Indeed, the coronavirus pandemic – which was fund managers’ biggest tail risk for most of 2020 – has tumbled down investors’ list of concerns in recent months.
As the chart below shows, just 15 per cent of investors said the pandemic is their biggest worry. Managers are currently most concerned about a bond market ‘taper tantrum (32 per cent) or inflation (27 per cent) and even higher taxes are seen as more of a tail risk than coronavirus.
Fund managers’ biggest tail risks
Source: Bank of America Global Fund Manager Survey, Apr 2021
Economic expectations among fund managers continue to improve as vaccination programmes in the US, the UK and other countries mean lockdown measures can start to be eased.
Half of investors now think the Covid recovery will be V-shaped (up from just 10 per cent in March 2020) while 37 per cent are expecting a U- or W-shaped recovery (compared with 75 per in March 2020).
A net 90 per cent of asset allocators told the Bank of America Global Fund Manager Survey that they expect a stronger economy over the coming 12 months (with 64 per cent thinking it will be “a lot stronger”) while a record net 93 per cent anticipate higher inflation.
This means that the outlook of higher growth/higher inflation has become the consensus view of investors. Some 57 per cent think this is the path of the global economy over the coming 12 months; just 28 per cent expect the ‘peak Goldilocks’ scenario of higher growth/lower inflation.
Growth and inflation expectations
Source: Bank of America Global Fund Manager Survey, Apr 2021
As you can see in the above chart, more investors expecting higher growth/higher inflation than higher growth/lower inflation has only happened on two other occasions: March 2011 and December 2016.
Fund managers’ profit expectations also remain “extremely high”, according to Bank of America. A net 85 per cent think global profits will improve over the next year; this is down on last month’s reading but is still near to all-time highs.
This optimism in the economic backdrop led fund managers to continue buying risk assets. A net 21 per cent of managers said they are currently taking higher than normal levels of risk in their portfolios, up 1 percentage point from the previous month.
Net % of managers with overweight to equities
Source: Bank of America Global Fund Manager Survey, Apr 2021
The net overweight to equities rose slightly in April to 62 per cent, which is close to a record and the second highest reading in the survey’s history, while the allocation to bonds fell.
Commodities however, saw their overweight slip back from last month’s record high, leading Bank of America to suggest optimism in commodities has peaked.
On a 12-month view, a record net 53 per cent of fund managers expect value stocks to beat growth while a net 24 per cent think small-caps will outperform large-caps.
Fund managers’ expectations for the next 12 months
Source: Bank of America Global Fund Manager Survey, Apr 2021
Another record was that a net 45 per cent of investors said high-yield bonds will beat investment grade over the coming year, again highlighting their confidence in the economic outlook.
The result of this is that consensus positioning among portfolios is towards cyclical stocks (or those that perform better when the economy is stronger), with high exposure to areas like banks, industrials, the UK and emerging markets.
Current portfolio positioning relative to past 10yrs
Source: Bank of America Global Fund Manager Survey, Apr 2021
A net 30 per cent of respondents are now overweight banks, which is the first time this has been the most overweighted sector since May 2018.
That said, April did see fund managers add to positions in tech stocks, which have led the market for much of the recent past but were being sold down earlier in 2021 as investors rotated out of growth stocks.
Bank of America said the move back into tech suggests asset allocators are running a barbell between tech stocks – which are expected to be beneficiaries of several long-term, post-pandemic trends – and cyclicals that will perform strongly as the economy recovers.