By Vicki Schmelzer
NEW YORK (MaceNews) – Inflation jitters knocked COVID-19 off its long-held perch as the top “tail risk” feared by global investors, according to the findings of BofA Global Research’s monthly fund manager survey, released Tuesday.
Up until this month, COVID-19 has been the primary concern of fund managers since February 2020, the survey noted.
In March, the biggest “tail risks” feared by portfolio managers were: “Higher than expected inflation” (37% of those polled), “A ‘tantrum’ in the bond market” (35%), “COVID-19 vaccine rollout” (13%) and “A bubble on Wall Street” (6%).
In February, the biggest “tail risks” feared by portfolio managers were: “COVID-19 rollout” (28% of those polled), “A ‘tantrum’ in the bond market” (25%), “Higher than expected inflation” (24%), and “A bubble on Wall Street” (13%).
In March, a record net 93% of managers looked for higher global CPI in the coming 12 months, up from a net 86% in February.
A net 91% of those polled looked for stronger world economic growth this year, unchanged from last month and “the best economic outlook ever,” the survey said.
A majority of managers (48%) looked for a V-shaped recovery, up from a net 34% with that view in February and compared to May 2020, when only 10% of investors saw scope for a V-shaped recovery.
Despite growth optimism, average cash balances rose to 4.0% in March, up from 3.8% in February, which was the “lowest since Mar’13 (just before Bernanke ‘taper tantrum’),” according to BofA Global.
Allocation to cash was steady at a net 1% overweight again this month, compared to a net 1% underweight in January 2021, which was the lowest level since May 2013.
On overall asset allocation, in March a net 61% of portfolio managers were overweight global equities, unchanged from February. This remained the second highest overweight ever and compared to the record highs near 70% seen in 2011. In January, a net 53% of those polled were overweight.
This month, a net 66% of portfolio managers were underweight bonds, the lowest bond holdings since February 2018. This compared to a net 62% underweight in February and a net 59% underweight in January.
Addressing the fast-paced run-up in 10-year U.S. Treasury yields, seen in the past month, fund managers did not believe the rise in yields to 1.5% would be enough to cause a larger equity sell-off.
“But the move from 1.5% to 2% is critical as 43% of investors now think 2% is the level of reckoning in the 10-year Treasury that will cause a 10% correction in stocks,” the survey said.
On average, those polled in March did not look for the Federal Reserve to begin raising interest rates until February 2023, the survey said.
Global investor allocation to commodities rose to a net 28% overweight, a new record, and up from the net 25% overweight seen in February and a net 19% overweight in January.
“The last time investors were this positive was back in Feb’11 when Brent was over $100/bl,” BofA Global said.
On regional equity asset allocation, global investors rebalanced portfolios this month, with eurozone and UK markets benefiting the most.
Allocation to U.S. stocks stood at a net 9% overweight in March, unchanged from February, and compared to a net 4% overweight in January.
This month, a net 30% of managers were overweight eurozone stocks, compared to a net 20% overweight in February and a net 29% overweight in January.
Fund managers had a net 45% overweight to global emerging markets (GEM) in March, down from a net 57% overweight in February and from down from the record net 62% overweight seen in January. Despite some position trimming, GEM remain the top region preferred by managers.
This month, portfolio managers had a net 10% overweight to Japanese markets, the largest overweight since February 2018. This was up from a net 8% overweight in February and a net 6% overweight in January.
UK equity allocations showed managers with a net 1% underweight in March, up from a net 10% underweight in February and a net 15% underweight in January. This is greatly improved from the net 34% underweight seen last October.
In March, the top “most crowded” trades deemed by managers were: “Long Tech” (34% of those polled), “Long Bitcoin” (24%), “Long ESG” (15%) and “Long global cyclicals” (8%). Note that ESG stands for Environmental, Social and Governance and refers to a class of investment also known as “sustainable investing.”
Last month, the top “most crowded” trades were: “Long Tech” (35% of those polled), “Long Bitcoin” (27%), “Short U.S. dollar” (13%), and “Long ESG” (13%).
An overall total of 220 panelists, with $630 billion in assets under management, participated in the BofA Global Research fund manager survey, taken March to 11, 2021. “197 participants with $597bn AUM responded to the Global FMS questions and 85 participants with $165bn AUM responded to the Regional FMS questions,” BofA Global said.
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Contact this reporter: vicki@macenews.com
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