By Vicki Schmelzer
NEW YORK (MaceNews) – Fed rate cut optimism supported world equities in May, according to BofA Global Research’s monthly fund manager survey, released Tuesday.
Anticipation of central bank easing overshadowed increasingly wobbly growth expectations, the survey said.
Ninety-six percent of those polled this month expected that the U.S. Federal Reserve will lower interest rates in either the second half of 2024 or in 2025. And 82% looked for the first rate cut to be in the second half of this year.
On the growth front, a net 9% of portfolio managers looked for weaker economic growth in the coming year, a sharp contrast to April when a net 11% of managers looked for stronger world growth, but not as pessimistic as January 2024, when a net 40% of managers looked for weaker growth.
Inflation projections improved in May, with a net 56% of fund managers looking for lower inflation in the next 12 months. This compared to a net 45% with that view in April and a net 57% with that view in March.
This month, managers increased their equity, bond and commodity allocation, while shunning real estate.
In May, a net 41% of portfolio managers were overweight global equities, up from a net 34% in April and a net 28% in March.
A net 6% of managers were underweight bonds this month, versus a net 14% underweight in April and a net 7% overweight in March.
This month, commodity holdings stood at a net 13% overweight, versus a net 11% overweight in April and compared to a net 8% underweight in March.
Allocation to real estate fell to a net 28% underweight in May. This compared to a net 15% underweight in April and a net 16% underweight in March.
“Investors are the most underweight real estate since June’09,” BofA Global Research said.
Average cash balances were 4.0% in May, compared to 4.2% in April and 4.4% in March.
Allocation to cash flipped to a net 3% overweight on the month. This compared to a net 9% underweight in April and a net 5% overweight in March.
On regional asset allocation, the U.S. and UK saw modest inflows while the Eurozone and Japan saw outflows and emerging markets were little changed.
Allocation to U.S. equities stood at a net 12% overweight in May, compared to a net 9% overweight in April and a net 8% overweight in March.
This month, a net 18% of managers were overweight Eurozone stocks, compared to a net 26% overweight in April and a net 14% overweight in March.
Allocation to global emerging markets (GEM) was unchanged at a net 4% overweight this month. This compared to a net 16% overweight in March and a net 8% underweight in February.
Allocation to Japanese equities dipped to a net 20% overweight in May from a net 23% overweight in April, while UK allocation increased to a net 14% underweight from a net 17% underweight in April.
In May, the biggest “tail risks” feared by portfolio managers were: “Higher inflation” (41% of those polled), “Geopolitics” (18%), “Economic hard landing” (15%), “US election” (9%), “Systemic credit event” (8%), AI bubble” (4%) and “Asia FX war” (2%).
In April, the biggest “tail risks” were: “Higher inflation” (41% of those polled), “Geopolitics” (24%), “US election” (12%), “Economic hard landing” (12%), “Systemic credit event” (7%) and “China banking crisis” (1%).
In May, the “most crowded” trades were deemed: “Long Magnificent Seven” (51% of those polled), “Long US dollar” (12%), “Short China equities” (11%), “Long Japan equities” (9%), “Long bitcoin” (6%) and “Short REITs” (3%).
In April, the “most crowded” trades deemed by global managers were: “Long Magnificent Seven” (52% of those polled), “Short China equities” (16%), “Long Japan equities” (14%), Long bitcoin” (11%) and “Short 30-year US Treasury” (2%).
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.
An overall total of 245 panelists, with $642 billion in assets under management, participated in the BofA Global Research fund manager survey, taken May 3 to May 9, 2024. “209 participants with $562bn AUM responded to the Global FMS questions and 134 participants with $301bn AUM responded to the Regional FMS questions,” BofA Global said.
Contact this reporter: vicki@macenews.com