Rapidly receding global recession concerns and ‘fear of missing out’ have seen jumps in exposure to equities and cyclical companies in particular, according to the latest Bank of America Merrill Lynch Global Fund Manager Survey.
The closely-watched survey – which took in the views of 178 participants with assets under management of $574bn – revealed that cash levels have also fallen to their lowest since June 2013, a further signal that fund managers have become more bullish. Cash levels dropped by 0.8 percentage points to 4.2 per cent – the biggest monthly drop since Donald Trump won the November 2016 presidential election.
There was also a huge jump in growth expectations – the largest month-on-month change since the bank began surveying allocators on their views in 1994 – as fund managers became more bullish about the global economy over the next 12 months.
Growth expectations rose by 43 percentage points as a net 6 per cent of asset allocators expect the global economy to improve over the coming 12 months compared with a net 37 per cent of respondents who expected the economy to contract in September.
Source: BofA ML Global Fund Manager Survey
“The bulls are back,” said Michael Hartnett, chief investment strategist at BofA ML. “Investors are experiencing FOMO – the fear of missing out – which has prompted a wave of optimism and jump in exposure to equities and cyclicals.”
Equity allocations moved 20 percentage points higher to a net 21 per cent overweight, a one-year high for survey respondents.
This shift was largely funded by the selling of bonds, as allocations fell by 9 percentage points to a 47 per cent underweight position – the most underweight allocation since November 2018.
Indeed, 52 per cent of survey respondents expect to perform the best of any asset class in 2020, with 21 per cent highlighting commodities. Fund managers remain bearish on the prospects for government and corporate bonds as both scored less than 10 per cent as the best performing asset class of next year.
As cash levels dropped, managers’ overweight positions in hard currency moved 20 percentage points lower to an 18 per cent overweight position. Elsewhere, allocations to real estate increased by 4 percentage points to a 10 per cent overweight and commodities hell to a 1 per cent overweight position.
After the rally of value stocks in September there was a big change in expectations for the style in November. A net 34 per cent of allocators now expect value to outperform growth during the next 12 months, up 21 percentage points from the previous month and the third biggest swing to value since 2007.
Nevertheless, allocators still remain overweight to growth sectors such as technology and consumer discretionary while continuing to avoid deep value resources stocks.
On a regional level, US equities lost their primacy among international asset allocators falling by 1 percentage point to a 14 per cent overweight. It was replaced at the top by emerging markets, which saw sentiment improve by 8 percentage points and now represents a 17 per cent overweight in allocators’ portfolios.
Allocations to eurozone equities also saw a big surge jumping by 12 percentage points to a 13 per cent overweight, the highest level since August 2018.
Source: BofA ML Global Fund Manager Survey
Finally, UK equity allocations also moved to a one-year high as hopes of a Brexit deal saw exposure rise by 11 percentage points to a 21 per cent overweight position.
Notwithstanding the more bullish sentiment in this month’s survey there were still real concerns among fund managers.
The US-China trade war continues to top the list of managers’ biggest tail risk and has done so for 19 of the past 21 surveys. A bond market bubble, monetary policy impotence and a slowdown in China also worry asset allocators.
Meanwhile, a net 40 per cent of respondents believe that global fiscal policy is “too restrictive”, down from 57 per cent in October “but still dramatically higher than 12 months ago when net 33 per cent said policy was ‘too stimulative’”.
In addition, investors still believe that corporate balance sheets are still overleveraged and that corporates should spend cash on improving them.