Global fund mangers extend their equity bets
Global fund managers have slashed their cash holdings to a two-year low and are betting that technology stocks and bonds will be the biggest winners when the Federal Reserve pivots to rate cuts.
That’s according to the final survey of these sophisticated investors this calendar year by Bank of America: 254 fund managers with $US691 billion ($1 trillion) of assets under management participated in the December survey.
The survey found that average cash level drops to 4.5 per cent this month from 4.7 per cent in November and 5.3 per cent in October. BofA’s global cash rule triggers a “sell” signal for equities when cash is 4 per cent or lower, and a “buy” signal when cash balance is 5 per cent or higher.
Two-thirds of those who responded said they expect a “soft landing” for the global economy in the next 12 months. Expectations for “hard landing” were 23 per cent.
When asked about the timing of recession for the US economy, 36 per cent said they expect no recession at all in the next 12 months while 32 per cent expect the US to fall into recession in the June quarter, BofA said.
The three biggest “tail” risks cited this month: Global recession/hard landing 32 per cent; high inflation keeps central banks hawkish 27 per cent; and, geopolitics worsen 17 per cent.
Eight out of 10 fund managers expect lower inflation: a record 89 per cent of those who responded say short-term rates will be lower in the next 12 months.
When asked which would be the best performing asset if the Fed cuts rates in the first half of 2024: 26 per cent said “long 30-year US Treasury”; 20 per cent “long long duration tech (biotech, renewables)“, and 16 per cent “long value (banks, REITs, small cap).
The survey found that these investors have pressed further into equities. Fund managers are the most overweight equities relative to cash since January 2022.
Cash allocation fell to net 3 per cent overweight or the least OW since April 2021), down 15 percentage points month over month, that’s the largest monthly decline in cash allocation since US election in November 2020).
Equity allocation rises to net 15 per cent OW (most OW since February 2022), up 13ppt MoM (biggest monthly jump since November 22).
December’s most crowded trades are: Long Magnificent Seven 49 per cent; short China equities 22 per cent; long Japan equities 8 per cent; long yield-curve steepeners 6 per cent; and short REITs 5 per cent.
In a separate note, BofA equity strategist Jill Carey Hall said a surge into equities – large, small caps and exchange-traded funds – last week was the fourth largest dating back in the bank’s data history, which began in 2008.
The bank’s clients were net buyers of US equities to the tune of $US6.4 billion last week, Mr Carey Hall said, the largest inflow since October 2022.
In addition, Mr Carey Hall said corporate client buybacks accelerated over the past week (largest inflows in BofA’s data history since 2009) and are tracking above seasonal levels for a sixth week in a row.
Introducing your Newsfeed
Follow the topics, people and companies that matter to you.
Find out moreRead More
Latest In Equity markets
Fetching latest articles