–Inflation Concerns Broaden
–US Election Deemed 3rd Biggest Tail Risk, Behind Covid/US-China Trade
By Vicki Schmelzer
NEW YORK (MaceNews) – Global investors polled in August were confident enough about global growth to increase their equity holdings and pare back their bond underweight, according to the findings of the BofA Global Research’s monthly fund manager survey, released Tuesday.
This month, a net 79% of fund managers looked for global growth to strengthen in the coming year, the highest level since December 2009. This compared to a net 72% and a net 61% with that view in July and June respectively. Back in April, as COVID-19 jitters were increasing, a net 2% of those polled looked for weaker global economic growth.
In August, 17% of portfolio managers looked for a V-shaped recovery, versus 68% looking for either a U-shaped or W-shaped recovery. This compared to 14% and 64% respectively last month.
Inflation expectations rose more markedly this month, with a net 52% of fund managers looking for higher global CPI in the next 12 months, versus a net 37% with that view in July and a net 21% with that view in June.
Average cash balances stood at 4.6% in August versus 4.9% in July and 4.7% in June. In April, cash balances stood at 5.9%, which was the highest level since the 9/11 terrorist attack.
In addition, allocation to cash edged down to a net 26% overweight this month, versus a net 32% overweight in July and a net 33% overweight in June. April’s allocation, at a net 54% overweight, was the highest since October 2008 and the second highest reading in the survey history.
On overall asset allocation, in August, a net 12% of those polled were overweight global equities versus a net 5% overweight in July and a net 6% overweight in June. April saw a net 27% underweight, which was the lowest allocation since March 2009.
This month, a net 38% of portfolio managers were underweight bonds versus a net 31% underweight in July and a net 26% underweight in June. Holdings were nearly back at the pre-COVID-19 levels seen in February, when a net 40% of managers were underweight bonds.
Commodity holdings were unchanged in August, with a net 12% of managers still overweight, the highest reading since July 2011. In June, a net 7% of managers were overweight.
On regional equity asset allocation, global investors trimmed their U.S. holdings and looked instead to offerings in European and emerging markets.
Allocation to U.S. stocks stood at a net 16% overweight in August, versus a net 21% overweight in July and a net 22% overweight in June.
In August, a net 33% of fund managers were overweight eurozone stocks, the highest level since May 2018. In July, a net 16% of managers were overweight eurozone stocks versus a net 7% overweight in June.
Allocation to global emerging market equities saw managers with a net 26% overweight this month, the highest levels since February 2020 and up from a net 15% overweight in July and a net 12% overweight in June.
This month, portfolio managers had a net 12% underweight to Japanese equities, compared to a net 3% underweight in July and a net 1% underweight in June.
UK equity allocations showed managers with a net 37% underweight in August, compared to a net 30% underweight in July and a net 29% underweight in June.
COVID-19 uncertainty remained the top tail risk for the sixth straight month, with long technology stocks still viewed as the most stretched trade.
In August, the biggest “tail risks” feared by portfolio managers were: “COVID-19 second wave” (35% of those polled), “U.S.-China trade war” (19%), “U.S. election” (14%), “Credit Event” (13%) and “Populism (redistribution policies)” (9%).
Last month, the biggest concerns were: “COVID-19 second wave” (52% of those polled), “U.S. election” (15%), “Credit Event” (11%), “Populist policies to end inequality” (8%).
In August, the top “most crowded” trades deemed by managers were: “Long U.S. tech” (59% of those polled), “Long gold” (23%), “Long Corporate Bonds” (8%), “Long Cash” (4%) and “Short USD” (4%).
The top “most crowded trades” in July were: “Long U.S. tech” (74% of those polled, “Long gold” (11%), “Long cash” (6%) and “Long Corporate Bonds” (6%).
The top “most crowded trades” in June were: “Long U.S. tech and growth stocks” (72% of those polled), “Long cash” (9%), “Long U.S. Treasuries” (6%) and “Long gold” (4%).
An overall total of 203 panelists, with $518 billion in assets under management, participated in the BofA Global Research fund manager survey, taken August 7-13, 2020. “181 participants with $489bn AUM responded to the Global FMS questions and 84 participants with $144bn AUM responded to the Regional FMS questions,” BofA Global said.
—
Contact this reporter: vicki@macenews.com
Content may appear first on the Mace News premium service. For real-time email delivery contact tony@macenews.com. Twitter headlines @macenewsmacro