By Vicki Schmelzer
NEW YORK (MaceNews) – Global investors, while much less bullish than in prior months, maintained an overall upbeat attitude in July, as evidenced by still sizable overweight holdings in stocks and commodities, according to the findings of BofA Global Research’s monthly fund manager survey, released Tuesday.
Growth expectations slipped again on the month, with fund managers fretting recently peaking PMIs. A net 47% of those polled in July looked for stronger world economic growth this year, down from 75% in June and 84% in May and compared to 91% in March and February, which saw “the best economic outlook ever,” the survey said.
Inflation concerns have dissipated, with a net 22% of managers looking for higher global CPI in the coming 12 months. This is down from a net 64% with that view in June, a net 83% in May and compared to the record net 93% seen in April and March.
Seventy percent of managers surveyed in July saw inflation as transitory, with only 26% stating that inflation is permanent.
In terms of portfolio holdings, average cash balances rose to 4.1% in July from 3.9% in June and back at May levels, according to BofA Global.
Allocation to cash rose to a net 12% overweight in July, the highest since October 2020 and compared to a net 9% overweight in June and May.
On overall asset allocation, a net 58% of portfolio managers were overweight global equities in July, versus a net 61% overweight in June and a net 54% overweight in May. These levels compare to the record highs near 70% seen in 2011.
This month, a net 68% of fund managers were underweight bonds, down from a net 69% underweight in June and back at May levels.
In terms of Federal Reserve policy, a net 39% of global investors polled in July expected the Fed to signal “tapering” at the Jackson Hole policy symposium in late August, while 31% of investors thought the central bank will wait until the September 21-22 meeting to unveil any changes, the survey said.
Global investor allocation to commodities rose to a net 29% overweight in July, the highest reading ever, BofA Global said. This compared to a net 27% overweight in June and May and a net 23% overweight in April.
“Commodities asset allocation is at the highest ever but it’s important to note that cyclicals have fallen drastically as a % of the benchmark in the last 15 years,” the survey said, noting that, “Energy and financials now make up only 18% of ACWI compare to 36% in ’06.”
On regional equity asset allocation, global investors favored U.S. and eurozone stocks.
Allocation to U.S. stocks rose to a net 11% overweight in July, compared to a net 6% overweight in June and May.
This month, a net 45% of managers were overweight eurozone stocks, the highest since January 2018 and up from a net 41% overweight in June and a net 35% overweight in May.
Fund managers trimmed global emerging market (GEM) holdings to a net 14% overweight, the smallest since October 2020. This compared to a net 31% overweight in June and a net 30% overweight in May and is well down from the record net 62% overweight seen in January.
Portfolio managers had a net 6% underweight in Japanese equity markets this month, versus a net 4% underweight in June and a net 2% overweight in May.
UK equity allocations showed managers with a net 1% overweight in July, compared to a net 4% overweight in June and a net 2% overweight in May, the survey said.
In July, the biggest “tail risks” feared by portfolio managers were: “Inflation” (29% of those polled), “A ‘taper tantrum’” (26%), “Asset bubbles” (15%), “China slowdown” (13%), and “COVID-19” (13%).
Last month, the biggest “tail risks” were: “Inflation” (30% of those polled), “A ‘taper tantrum’” in the bond market (30%), “Asset bubbles” (18%), “COVID-19” (10%) and “China slowdown” (2%).
In July, the top “most crowded” trades deemed by managers were: “Long Tech Stocks” (26%), “Long ESG” (25%), “Long Bitcoin” (15%), “Long Commodities” (14%), “Short U.S. Treasuries” (9%), and “Long stock values” (7%). 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 Commodities” (26% of those polled), “Long Bitcoin” (21%), “Long Tech Stocks” (21%), “Long ESG” (15%), “Short U.S. Treasuries” (10%) and “Long Euro” (3.0%).
An overall total of 270 panelists, with $805 billion in assets under management, participated in the BofA Global Research fund manager survey, taken July 2 to 8, 2021. “239 participants with $742bn AUM responded to the Global FMS questions and 92 participants with $218bn AUM responded to the Regional FMS questions,” BofA Global said.
Historical top tail risks: (Source BoA)
Contact this reporter: vicki@macenews.com
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