BofA survey: Fund managers call time on bear market
No V-shaped recovery
The majority of fund managers have called time on 2020's brief bear market as 58% now believe we have entered the a bull market, according to the latest global fund manager survey from Bank of America (BofA).
Almost half (49%) of investors have also rotated from recession claims, believing macro to be in early-cycle phase as opposed to 37% who still believe we are in recession.
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A V-shaped recovery is still out of favour, with only 20% predicting one, as 61% still prefer the U- or W- shaped recovery, although managers still show doubt on the sustainability of the upturn with 51% preferring balance sheet discipline as opposed to 37% vying for an increased capex. Cash levels among managers also rose from 4.6% to 4.8%.
More managers believe a vaccine is required for rates to rise rather than inflation, at 41% vs 37%, and the majority of all surveyed expect a "credible vaccine" to be announced by 30 January 2021.
A rotation to cyclicals has begun as the allocation to technology, healthcare and large caps begins to decrease, while small cap and value are both up, and industrials are at their highest overweight since January 2018.
However, asset allocation remains "stubbornly skewed" toward healthcare, US, technology, cash, short energy and UK banks compared to long term history.
Long US technology has become the most crowded trade of all-time at 80%, which has led a "tech bubble" to be cited as the second biggest tail risk this month (22%), outweighed only by a Covid-19 second wave (30%), with the US election (18%) rounding out third place.
Growth in the global economy has received its highest level of belief since September 2003 with 84% of respondents expecting it to rise, of which 40% anticipate it to get "a lot stronger", the highest number ever.
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Inflation expectations have also risen as net 66% of investors see a higher global CPI over the coming 12 months, although only 7% believe it will be "a lot higher".
Appetite for risk has dropped from 14% to 9% of managers taking "higher than normal risk" compared to August, while the net percentage of investors believing companies are overleveraged has reached a majority (52%).
Equity allocation has risen a further six percentage points to net 18% overweight, although this is still 0.4 standard deviation points below its long-term average, mirrored by bond allocations which, at 35% underweight, is 0.4 standard deviation points above its long-term average.
Cash has fallen to its lowest level since February 2020 (25% overweight) while real estate and commodities have also declined to net 4% underweight and net 5% overweight, respectively.
Belief in value has reached its highest level since the start of the year as net 5% of managers expect it to outperform growth, while net 52% anticipate high-quality to outperform low-quality.
The euro is cheap, according to those surveyed, with net 14% believing so, while net 30% claim the dollar is overvalued.
Allocation to US equities increased further to net 18% overweight, along with Japanese equities, up eight percentage points to net 4% underweight and UK equities, up two percentage points, although this remains significantly underweight at 35%, the most underweight region.
Eurozone allocations have fallen by 11 percentage points this month, but remain the most overweight region at net 22%, while emerging markets equities fell by ten percentage points to 16% overweight.
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Technology and pharmaceuticals each saw ten percentage point reductions in their net overweight allocations but still remain the most favoured sectors overall, as industrials rose to third most overweight and utilities remain the largest net underweight sector.
A quarter (25%) of the total investor assets under management of those surveyed is now allocated to ETFs, the highest figure on record, although the number of managers intending to increase their exposure to ETFs fell by a further four percentage points to 6%, the joint lowest on record.
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