– Fed Independence and US Dollar Debasement Now Number Two “Tail Risk”
– 47% Of Portfolio Managers Look for 4 or more Fed Rate Cuts In Coming Year
By Vicki Schmelzer
NEW YORK (MaceNews) – Global growth optimism jumped in September, fueled by Fed rate cut expectations and waning trade war jitters, according to Bank of America Global Research’s monthly fund manager survey, released Tuesday.
A net 16% of those polled looked for weaker global growth in the coming 12 months. This is in way down from August, when a net 41% looked for weaker growth. In July, a net 31% expected weaker global growth. As background, in April, a net 82% of managers looked for weakness, the “most on record” (30-year history).
Inflation concerns nudged higher in September, with a net 24% looking for higher global CPI in the coming year, versus a net 18% with that view in August and a net 6% with that view in July.
Fund manager cash levels held steady at 3.9% for the third consecutive month in September, with the survey noting that, “The ‘sell’ signal for the BofA Global FMS cash rule was triggered in July when cash fell from 4.2% to 3.9%.”
Cash allocation stood at a net 4% underweight in September, compared to a net 1% underweight in August which was the first underweight since February 2025. Cash allocation was a net 6% overweight in July.
In terms of asset allocation, equity and commodity holdings spiked while other assets were little changed.
In September, a net 28% of portfolio managers were overweight global equities versus a net 14% overweight in August and a net 2% overweight in July.
A net 3% of those polled were underweight bonds, versus a net 5% underweight in August and a net 4% underweight in July.
Allocation to real estate stood at a net 22% underweight in September, compared to a net 21% underweight in August and a net 10% underweight in July.
Commodity allocation rose to a net 8% overweight in September versus a net neutral in August and a net 5% overweight in July.
In terms of regional equity allocation this month, most regions saw some slippage in holdings, with the eurozone, emerging markets and the UK seeing larger outflows.
Allocation to U.S. equities stood at a net 14% underweight in September, compared to a net 16% underweight in August and a net 23% underweight in July.
This month, a net 15% of those polled were overweight eurozone stocks, down from a net 24% overweight in August and compared to a net 41% overweight in July, which was a four-year high.
Allocation to global emerging markets (GEM) fell to a net 27% overweight in September from a net 37% overweight in August. This compared to a net 22% overweight in July.
This month, allocation to Japanese equities slipped to a net 5% underweight from a net 2% underweight in August, while UK equity allocation tumbled to a net 20% underweight from a net 2% underweight in August.
In terms of the three biggest “tail risks” seen by managers, in September these were: “2nd wave of inflation” (26% of those polled), “Fed loses independence and US dollar debasement” (24%) and “Disorderly rise in bond yields” (22%)
In August, the “tail risks” were seen as: “Trade war triggers global recession” (29% of those polled), “Inflation prevents Fed rate cuts” (27%) and “Disorderly rise in bond yields” (20%).
In September, the three “most crowded” trades were seen as “Long Magnificent 7” (42% of those polled), “Long Gold” (25%) and “Short US dollar” (14%)
Last month, the three “most crowded” trades were seen as “Long Magnificent 7” (45% of those polled), “Short U.S. dollar” (23%), and “Long Gold” (12%)
Note: the term “Magnificent Seven” was coined by Bank of America’s chief investment strategist Michael Hartnett, referring to a basket of the seven major tech stocks: Apple, Microsoft, Amazon, NVIDIA, Alphabet, Tesla and Meta.
This month, BofA Global asked special questions about AI, Fed Chair Jerome Powell’s replacement and overall Federal Reserve Policy.
On AI, 48% of those polled said they think that “AI stocks are not in a bubble” and 50% said “AI is already increasing productivity.”
On inflation, “73% of FMS say that AI is deflationary, while just 7% said it is inflationary,” the survey said.
With Fed Chair Jerome Powell’s term expiring May 15, 2026, BoA Global polled fund managers about his potential replacement.
In September, 30% of those polled expected Christopher Waller to be the nominee, up from 20% in August and 13% said Kevin Hassett (19% in August) and 8% said Scott Bessent (13% in August).
Regarding Fed policy, 47% of managers looked for the Fed to ease four or more times in the coming 12 months, the survey noted.
Thirty percent looked for four Fed cuts, 29% looked for three cuts, 17% looked for two cuts, while 10% of those polled looked for the Fed to lower rates five times, 7% looked for more than 5 cuts, 4% looked for only 1 cut and 1% saw no change.
An overall total of 196 panelists, with $490 billion in assets under management, participated in the BofA Global Research fund manager survey, taken September 5 to September 11, 2025. “165 participants with $426bn AUM responded to the Global FMS questions and 101 participants with $207bn AUM responded to the Regional FMS questions,” BofA Global said. Contact this reporter: vicki@macenews.com