By Vicki Schmelzer
NEW YORK (MaceNews) – Global investors were upbeat about world growth prospects in April, but at the same time keeping a close eye on rising yields and inflation, according to the findings of BofA Global Research’s monthly fund manager survey, released Tuesday.
A net 90% of those polled in April looked for stronger world economic growth this year, down from 91% in March and February, which saw “the best economic outlook ever,” the survey said.
A majority of managers (50%) looked for a V-shaped recovery, compared to a net 48% in March and a net 34% in February and in sharp contrast to May 2020, when only 10% of investors saw scope for a V-shaped recovery.
In April, a record net 93% of managers looked for higher global CPI in the coming 12 months, unchanged from March and up from a net 86% in February.
Despite continued growth optimism, average cash balances rose to 4.1% in April, up from 4.0% in March and 3.8% in February, which was the “lowest since Mar’13 (just before Bernanke ‘taper tantrum’),” according to BofA Global.
Allocation to cash fell to a net 1% underweight in April, after holding steady at a net 1% overweight in March and February. Cash allocation is back to the net 1% underweight seen in January 2021, which was the lowest level since May 2013.
On overall asset allocation, in April a net 62% of portfolio managers were overweight global equities, up from a net 61% in March and February. This remained the second highest overweight ever and compared to the record highs near 70% seen in 2011.
This month, a net 68% of portfolio managers were underweight bonds, the lowest bond holdings since February 2018. This compared to a net 66% underweight in March and a 62% underweight in February and a net 59% underweight in January.
Fund managers did not believe that the fast-paced rise in U.S. Treasury yields above 1.5%, seen in recent months, would be enough to cause a larger equity sell-off.
“But the move from 1.5% to 2% is critical as 47% 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 this month believed that a 10-year Treasury yield of 2.3% would make bonds attractive relative to stocks, the survey said.
Global investor allocation to commodities slipped to a net 23% overweight in April, down from a record net 28% overweight in March and compared to the net 25% overweight seen in February.
On regional equity asset allocation, global investors did only minor rebalancing of portfolios this month, with emerging markets the sole exception.
Allocation to U.S. stocks stood at a net 7% overweight in April, down from a net 9% overweight in March and February.
This month, a net 30% of managers were overweight eurozone stocks, unchanged from March and compared to a net 20% overweight in February.
Fund managers had a net 33% overweight to global emerging markets (GEM) in April, down from a net 45% overweight in March and net 57% overweight in February and from the record net 62% overweight seen in January. Despite the position trimming seen in recent months, GEM remain the top region preferred by managers.
This month, portfolio managers had a net 8% overweight to Japanese markets this month, down from a net 10% overweight in March, which was the largest overweight since February 2018. Current allocation is back at February 2021 levels.
UK equity allocations showed managers with a net 2% underweight in April, versus a net 1% underweight in March and a net 10% underweight in February. This is greatly improved from the net 34% underweight seen last October.
In April, the biggest “tail risks” feared by portfolio managers were: “Bond market ‘taper tantrum’ (32% of those polled), “Inflation” (27%), “Higher taxes” (15%), “COVID-19 vaccine rollout” (15%) and “Peak economic growth (6%).
Last month, the biggest “tail risks” 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 April, the top “most crowded” trades deemed by managers were: “Long Tech” (31% of those polled), “Long Bitcoin” (27%), “Long ESG” (17%), “Long global cyclicals” (14%) and “Short U.S. Treasuries” (9%). Note that ESG stands for Environmental, Social and Governance and refers to a class of investment also known as “sustainable investing.”
In March, the top “most crowded” trades were: “Long Tech” (34% of those polled), “Long Bitcoin” (24%), “Long ESG” (15%) and “Long global cyclicals” (8%).
An overall total of 200 panelists, with $553 billion in assets under management, participated in the BofA Global Research fund manager survey, taken April 6 to 12, 2021. “177 participants with $530bn AUM responded to the Global FMS questions and 86 participants with $153bn AUM responded to the Regional FMS questions,” BofA Global said.
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Contact this reporter: vicki@macenews.com
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