–On Average, Investors Expect Fed Taper to End by April 2022
By Vicki Schmelzer
NEW YORK (MaceNews) – Global investors increased their cash holdings in December, wary of putting new monies to work ahead of expected world central bank tightening in 2022, according to the findings of BofA Global Research’s monthly fund manager survey, released Tuesday.
In terms of portfolio holdings, average cash balances rose to 5.1% this month versus 4.4% in November and 4.7% in October, “as investors get more fearful on hawkish central banks,” the survey said.
The rise in cash holdings triggered the “FMS Cash Rule tactical ‘Buy’ signal,” which suggests global equity returns of +1.3% in one month, +4.0% in 3 months and +6.5% in 6 months, the survey said.
Allocation to cash rose to a net 36% overweight, the largest since May 2020 and compared to a net 22% overweight in November and a net 27% overweight in October.
A net four percent of those polled in December looked for stronger world economic growth in the coming year, versus a net three percent with that view in November and compared to October, when a net six percent looked for weaker growth. As a reminder in March 2021, a net 91% looked for stronger world growth.
Inflation jitters continued to wane in December, with a net 33% of investors looking for lower global CPI in the coming 12 months. Last month, a net 14% looked for lower global CPI and in October, a net 1% looked for lower global CPI. This remains in sharp contrast to April and March, when a record 93% of those polled looked for higher inflation.
This month, a net 55% of fund managers viewed inflation as transitory versus a net 61% with that view in November. A net 36% of those polled said inflation was permanent, compared to a net 35% last month.
In terms of Fed rate hikes for 2022, in December 49% of managers looked for two increases, 23% said one increase, 17% said three increases, 6% said no increases and 2% said four increases. Last month, 39% of managers looked for two increases, 37% said one increase, 13% said no increases, 8% said three increases and 1% said four increases.
On average, investors expected Fed tapering to finish by April 2022.
In anticipation of future Fed and other world central bank tightening next year, investors pared equity and commodity holdings and increased bond holdings.
A net 46% of portfolio managers were overweight global equities in December, compared to a net 58% in November and a net 50% in October.
This month, a net 63% of managers were underweight bonds, compared to a net 69% underweight in November and a net 80% underweight in October, which was the largest bond underweight ever.
Global investor allocation to commodities fell to a net 19% overweight in December from a net 26% overweight in November and a net 28% overweight in October.
On regional equity asset allocation, global investors trimmed U.S. and tweaked other holdings in December.
Allocation to U.S. stocks fell to a net 18% overweight from a net 29% overweight in November, which was the highest level since August 2013. Allocation stood at a net 16% overweight in October.
This month, a net 31% of managers were overweight eurozone stocks, compared to a net 33% overweight in November and a net 34% overweight in October.
Fund managers added to their global emerging market (GEM) stock holdings, with investors having a net one percent underweight in December, little changed from a net two percent underweight in November and compared to a net five percent underweight in October. Current levels are well down from the record net 62% overweight seen in January 2021.
Portfolio managers had a net two percent underweight to Japanese equity markets this month, compared to a net seven percent overweight in November and October
UK equity allocations showed managers with a net 11% underweight in December, compared to a net 15% underweight in November and a net 12% underweight in October.
In December, the biggest “tail risks” feared by portfolio managers were “Hawkish central bank rate hikes” (42% of those polled), “Inflation” (22%), “COVID-19 resurgence” (15%), “Asset bubbles” (8%), “Geopolitics” (6%), “China credit contagion” (4%) and “EM currency crisis” (1%).
In November, the biggest “tail risks” were: “Inflation” (33% of those polled), “Central bank rate hikes” (22%), “China” (20%). “Asset bubbles” (16%), “COVID-19” (5%) and “US fiscal cliff” (1%).
In December, the “most crowded” trades deemed by managers were: “Long Tech Stocks (39% of those polled), “Long Bitcoin” (18%), “long ESG” (17%), “Short US Treasuries” (10%), “Short China stocks” (9%) and “Short EM FX” (2%).
In November, the “most crowded” trades were: “Long Tech Stocks” (37% of those polled), “Long Bitcoin” (21%), “Long ESG” (14%), “Short US Treasuries” (13%), “Short China and EM stocks” (8%) and “Long oil” (5%).
An overall total of 371 panelists, with $1.1 trillion in assets under management, participated in the BofA Global Research fund manager survey, taken December 3-9 2021. “330 participants with $968bn AUM responded to the Global FMS questions and 180 participants with $434bn AUM responded to the Regional FMS questions,” BofA Global said.
Contact this reporter: vicki@macenews.com
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