By Vicki Schmelzer
NEW YORK (MaceNews) – Global investors remained upbeat about world growth prospects and added to risk positions in December, according to the BofA Global Research monthly fund manager survey, released Tuesday.
“In the past two months, FMS investors have priced out recession risks,” BofA said.
Since October, “global growth expectations jumped a record 66ppt and recession fears plummeted 33ppt; a dramatic turnabout from ‘the Most Bearish FMS since the GFC’ in June 2019,” BofA said.
In December, a net 29% of investors polled looked for global growth to improve in the next 12 months. This compared to January 2019, when a net 60% of investors had a bearish global growth outlook, the worst outlook for the world economy since July 2008.
Average cash balances remained unchanged at 4.2% in December, down from 5.0% in October. Cash levels currently are at the lowest level since March 2013, the survey said.
Allocation to cash was also unchanged at a net 18% overweight this month, versus a net 38% overweight in October. This compared to a net 44% overweight in February 2019, which was the highest overweight since January 2009.
Inflation expectations surged again in December, with a net 43% of managers looking for global inflation to rise in the next 12 months. In November and October respectively, a net 31% and a net 4% of fund managers saw CPI rising in the coming year.
This month, fund managers continued to favor equities over bonds.
In December, a net 31% of fund managers were overweight global equities, compared to a net 21% overweight in November and a net 1% overweight in October.
This compared to June 2019, when a net 21% of fund managers were underweight global equities. June’s underweight was the lowest equity allocation since March 2009, when the S&P 500 hit a low of 666.79 in the wake of the financial crisis.
In December, a net 48% of portfolio managers said that they were underweight bonds, compared to a net 47% underweight in November and a net 38% underweight in October. The current bond allocation compared to a net 69% bond underweight in February 2018, which was a record low.
Fund allocation to commodities showed managers with a net
6% overweight this month – an 18-month high, “on trade war de-escalation and global PMI rebound.” Managers held a 1% commodity overweight in November and a net 3% commodity overweight in October.
On regional equity asset allocation, the U.S. fell out of favor as global investors rotated “into higher beta regions,” the survey said.
In December, allocation to U.S. stocks stood at a net 8% overweight compared to a net 14% overweight in November and a net 15% overweight in October.
FMS investors predicted that the S&P 500, which closed at 3,191.45 Monday, will peak at 3,322, up from the 3,022 forecast a year ago and the highest since the question was first posed in June 2018, the survey said.
In addition, “FMS investors say U.S. 10-year Treasury yields can rise a further 85bp (from 1.86% to 2.71%) before causing losses and volatility in risk assets,” BofA said.
In December, a net 24% of fund managers were overweight eurozone stocks, the largest overweight since May 2018. This compared to a net 13% overweight in November and a net 1% overweight in October.
Investors had a net 25% overweight to global emerging markets this month, compared to a net 17% overweight in November and a net 9% overweight in October. EM holdings peaked at a net 34% overweight in May and April 2019.
Portfolio managers held a net 6% overweight to Japanese stocks in December, the highest overweight since February 2019. This compared to a net 1% overweight in November and a net 4% underweight in October.
UK equities continued to see solid inflows as Brexit fears waned, the survey said. A net 13% of those polled in December were underweight UK stocks, versus a net 21% underweight in November and a net 32% underweight in October. The record UK underweight was the net 41% underweight seen in March 2018.
In December, the biggest “tail risks” feared by portfolio managers were: “Trade war” (33% of those polled), “Outcome of 2020 election” (22%), “Bond bubble pops” (19%) and “Monetary policy impotence” (12%).
Last month, the biggest concerns were: “Trade War” (39% of those polled), “Bond market bubble (16%), “Monetary policy impotence” (12%), and “China slowdown” (11%).
In December, the deemed “most crowded” trades were: “Long U.S. tech and growth stocks” (34% of those polled), “Long U.S. Treasuries” (20%), “Long IG corporate bonds” (20%), “Short volatility” (19%).
The top “most crowded trades” in November were: “Long U.S. tech and growth stocks” (30% of those polled), “Long U.S. Treasuries” (21%) and “Long IG corporate bonds” (20%).
An overall total of 247 panelists, with $745 billion in assets under management, participated in the BofA Global Research fund manager survey, taken December 6-12, 2019. “199 participants with $627bn AUM responded to the Global FMS questions and 115 participants with $286bn AUM responded to the Regional FMS questions.” BofA said.
Email vschmelzer@finwrit.com