Investors’ optimism on the post-pandemic reopening is overcoming their worries about higher interest rates, the latest Bank of America Global Fund Manager Survey shows. 
The closely watched survey – which polled 239 fund managers running at total of £810bn about their positioning – found investors have been increasing exposure to stocks and commodities while avoiding bonds and other defensive assets at the start of 2022.
‘Hawkish central banks’ raising interest rates is the main risk that fund managers are worried about at present with 44% citing this as their leading concern, followed by inflation (21%). Just 6% said a resurgence in Covid-19 is the biggest risk.
What fund managers consider to be the market’s biggest ‘tail risk’
Source: BofA Global Fund Manager Survey
The fund managers polled by the bank now expect an average of three interest rate hikes from the Federal Reserve in 2022, up from two last month. They think the first one will come in April, pulled forward from their previous expectation of July.
But these concerns have been overset by the confidence that inflation will prove transitory (only 36% think inflation is permanent) and global economic growth will improve over the coming year.
Just 7% of investors are worried about a recession in the near term and 71% are expecting ‘boom’ conditions of above-trend growth and inflation.
The data shows that fund managers have taken more cyclical positioning recently, reflecting their confidence that the economy will rebound as Covid restrictions continue to be eased.
Bank of America’s analysts said: “Investors are very long equities, particular in the EU, as well as cyclical banks, commodities and industrials while they shun bonds, defensives (utilities, staples) and emerging markets.”
Fund managers’ net % overweights – Jan 2022
Source: BofA Global Fund Manager Survey
In January, there was a 21 percentage-point jump in the allocation to banks; investors now have a net overweight of 41% to them, close to the all-time high set in October 2017. Meanwhile, fund managers’ net overweight to commodities is at its highest ever.
In keeping with this pro-cyclical stance, there has been a significant increase in the number of fund managers who expect the value style of investing – which tends to perform better when the economy is stronger – will beat the growth style in the coming 12 months. A net 50% of investors now say value will outperform growth, up 39 percentage points in the space of a month.
At the same time, they are “very underweight” assets that a vulnerable to interest rate hikes, such as tech stocks, consumer staples businesses and bonds. Fund managers’ underweight to bonds stands at 77%.
The net overweight to tech stocks – which have been the darlings of the stock market for much of the past decade – was “drastically” cut to 1% in January. This is down 20 percentage points from December and takes the allocation to tech to its lowest since December 2008.