Fund managers around the globe continue to position their portfolios with a very bullish slant as the world opens up from the coronavirus pandemic, Bank of America has found. 
The monthly Bank of America Global Fund Manager Survey offers some insight into the thinking and positioning of asset allocators. The latest edition polled 92 fund managers with combined assets of $645bn and was carried out between 4 and 10 June.
It found that “investors [are] bullishly positioned for permanent growth, transitory inflation and a peaceful Fed taper via longs in commodities, cyclicals and financials”.
While the emergence of the Delta variant of Covid-19 has created a headwind, many are confident that the global economy will continue to open up in earnest as the vaccine roll-out progress.
Growth and inflation expectations
Source: BofA Global Fund Manager Survey
Economic growth has already rocketed from the low levels posted in 2020’s lockdown conditions, while inflation has started to rise. These conditions are hallmarks of the early phase of the business cycle, which generally manifests after a sharp recovery from recession.
Indeed, 76 per cent of asset allocators are expecting to see above-trend growth and above-trend inflation over the months ahead. This is an all-time high for the survey and a much more positive reading than for much of the past decade, when the global economy faced persistently low GDP growth and deflationary pressures.
That said, inflation is regarded as one of the major factors for investors to watch at the moment. Data from the US last week, for example, showed headline consumer prices rose 5 per cent year-on-year in May, the fastest pace since August 2008 and higher than analysts were expecting.
Fund managers’ biggest tail risks
Source: BofA Global Fund Manager Survey
Inflation is tied with a ‘taper tantrum’ as the biggest concern that fund managers are currently worried about, with each being cited by 30 per cent of the survey’s respondents as their main tail risk.
However, most managers think higher inflation will be a relatively temporary issue to deal with: 72 per cent told Bank of America that inflation will be ‘transitory’, while only 23 per cent expect it to be permanent.
Meanwhile, 68 per cent of fund managers do not expect another recession to hit until 2024 at the earliest, while 63 per cent think the US Federal Reserve will hold off announcing any tapering to policy until August or September 2021.
Net fund managers that are overweight equities
Source: BofA Global Fund Manager Survey
This bullishness has led fund managers to top up equity allocation to a year-to-high of 61 per cent. This is a 7 percentage point increase on May’s levels.
The net allocation to bonds, however, has fallen to an all-time low with 63 per cent of managers saying they are currently underweight fixed income.
Fund manager positioning vs history z-scores
Source: BofA Global Fund Manager Survey
Looking at positioning in more detail, portfolios are overweight more cyclical areas of the market, which would be expected to do well as the global economy rebounds from the shock of the 2020 pandemic.
UK equities – which shunned by investors for much of the recent past because of uncertainty around Brexit – are among these assets thanks to a high weighting to cyclical areas like banks, energy and materials.
The survey found that portfolios are “substantially overweight” late cyclicals, a net 30 per cent overweight banks, a net 11 per cent overweight energy and a net 23 per cent overweight materials. There’s a corresponding underweight to defensives – a net 39 per cent of portfolios are underweight utilities and a net 4 per cent underweight staples.
Over the next 12 months, net % of fund managers think…
Source: BofA Global Fund Manager Survey
Most fund managers continue to expect value stocks to outperform growth over the coming year, which shouldn’t be too surprising given their current positioning.
In addition, a net 36 per cent expect high momentum to beat low momentum, which is the largest percentage ever recorded by the Bank of America Global Fund Manager Survey.
A net 23 per cent think high volatility will beat low volatility.
What will be the best performing asset over the next four years?
Source: BofA Global Fund Manager Survey
When asked what asset will be the best performing in the next four years, investors favoured a barbell of value stocks (picked by 24 per cent) and tech stocks (cited by 23 per cent).