–US Stock Allocation Highest on Record
–Cash Allocation at All-Time Lows, Triggers Contrarian Sell Signal, BOA Says
By Vicki Schmelzer
NEW YORK (MaceNews) – U.S. growth optimism and Fed rate cut expectations drove the “super-bullish” risk sentiment seen at year-end, according to BofA Global Research’s monthly fund manager survey, released Tuesday.
A net 7% of those polled in December looked for a stronger global economy in the coming 12 months versus November, when a net 4% looked for a weaker world economy. As background, in September, a net 42% looked for weaker growth in the coming 12 months.
The turn-about this month was driven by greater optimism about U.S. growth, the survey said.
“Trump 2.0 policy agenda (tax cuts, deregulation) boosted profit expectations, with 49% of FMS investors expecting global profits to improve (up 22ppt MoM to a 3-year high),” BofA Global Research said.
FMS cash allocation fell from a net 4% overweight last month to a net 14% underweight in December. This was the lowest cash allocation since BofA’s recordkeeping began in April 2001.
Cash levels fell to 3.9% of assets under management from 4.3% of AUM, “matching the lowest levels” since June 2021 and triggering the second contrarian “sell” signal in three months, the survey said.
“Since 2001, there have ben 12 prior ‘sell signals’ which saw global equity (ACWI) returns of -2.4% in the 1 month after and -0.7% in the 3 months after the ‘sell’ signal was triggered,” the survey noted.
A net 32% of those polled in December expected higher inflation in the coming 12 months versus 10% with that view last month.
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In terms of asset allocation, global investors added to equity and real estate holdings in December, while lightening up on bonds and commodities.
This month, a net 49% of portfolio managers were overweight global equities, compared to a net 34% in November and a net 31% overweight in October.
A net 15% of those polled were underweight bonds, compared to a net 10% underweight in November and a net 15% in October.
Allocation to real estate rose to a net 7% underweight from a net 12% underweight in November and compared to a net 3% underweight in October.
This month, commodity holdings stood at a net 12% underweight, the lowest allocation since June 2017 and compared to a net 9% underweight in November and a net 1% overweight in October.
In equity allocation this month, the U.S. and Japan saw inflows, while other regions saw outflows or were little changed.
Allocation to U.S. equities rose 24 percentage points to a net 36% overweight in December, the highest allocation on record, the survey said. In October, allocation was a net 10% overweight.
When asked about what the best performing asset class in 2025 will be, 30% of those polled said “US equities,” followed by “Global Equities” (25%) and “Bitcoin” (15%).
This month, a net 25% of portfolio managers were underweight eurozone stocks, versus a net 3% underweight in November and October.
Allocation to global emerging markets (GEM) stood at a net 4% overweight in December, down from a net 27% overweight last month and compared to a net 21% overweight in October.
This month, allocation to Japanese equities rose to a net 4% underweight from a net 13% underweight in November, while UK allocation slipped to a net 14% underweight from a net 13% underweight last month.
In December, the top two biggest “tail risks” were tied, with 37% each of FMS investors fearful that, “Global trade war triggers recession” and “Inflation causes Fed to hike.”
In November, the top two biggest “tail risks” feared by portfolio managers were “Global Inflation accelerates” (32% of those polled) and “Geopolitical Conflict” (21%).
In December, the top three “most crowded” trades were deemed “Long Magnificent 7” (57% of those polled), “Long U.S. dollar” (15%) and “Long Russell 2000” (6%).
In November, the top three “most crowded” trades were: “Long Magnificent 7 stocks” (50% of those polled), “Long Gold” (28%) and Long US dollar” (7%).
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 204 panelists, with $518 billion in assets under management, participated in the BofA Global Research fund manager survey, taken December 6-12, 2024. “171 participants with $450bn AUM responded to the Global FMS questions and 119 participants with $279bn AUM responded to the Regional FMS questions,” BofA Global said.
Contact this reporter: vicki@macenews.com