Data Source: Bank of America
Bank of America surveyed 212 mutual fund, hedge fund and pension fund managers with $598 billion under management during the week ending June 11.
OUTLOOK:
- 53% say the comeback from the March lows is a “bear market rally.”
- 37% believe it’s a new bull market.
- Only 18% of investors expect a V-shaped economic recovery.
- 64% think it will be “U” or W-shaped, or more gradual.
- Most expect growth and earnings to improve as lockdowns ease and activity resumes.
- Bets on a global recession in next 12 months fell to 46%, with 35% of respondents expecting global GDP to get “a lot stronger.”
- Investors raised their global growth bets but said they don’t expect global manufacturing to show expansion before October.
- 35% of respondents expecting global GDP to get “a lot stronger.”
- A net 13% of investors said fiscal policy is too stimulative.
- A net 65% of fund managers want corporates to spend cash on improving their balance sheets.
- 25% want them to increase capex and just 5% want payouts to shareholders.
- A net 46% of participants in the survey expected a prolonged recession versus 93% in April.
- 67% say the next decade will have annualized global equity return of 0 to 5%.
SENTIMENT:
- A net 78% of investors in June believe the market is overpriced, the most since 1998.
- Bank of America titled the report the “moody bulls.”
- Wall Street is past “peak pessimism” but June optimism was “fragile, neurotic, nowhere near dangerously bullish,” according to strategists Michael Hartnett and Shirley Wu.
- Survey shows growth expectations jumping, cash levels collapsing, risk appetites surging.
POSITIONING:
- Investors took cash levels down from 5.7% to 4.7% since last month, the biggest “dash from cash” since August 2009. biggest drop since Aug’09 (led by institutional not retail investors).
- Managers aggressively covered short positions in small-cap, value, European, emerging markets, banks and industrials, according to the Bank of America survey.
- ‘Collapsing’ cash levels and a surge in risk appetite.
- Net equity exposure, despite the valuation concerns, rose 18 percentage points (from 34% in May to 52% in June), the survey indicated, the highest since September 2018.
- Institutional money managers, such as pension funds, showed the biggest plunge in cash holdings.
- Retail or mutual funds still have cash to deploy.
- June also brought an investor “dash to trash” with the buying of less popular and more risky equities, such as small-cap, value, euro-zone and emerging-market stocks.
- Allocation to euro-zone stocks surged to a net 7% overweight, the biggest increase of any region.
- Exposure to U.S. equities declined to a net 22% overweight
Investors decreased their net exposure to technology, pharma and communication stocks moderated their underweights in materials and energy.
MOST CROWDED TRADE:
- 72% of investors say US tech and growth stocks are the “most crowded trade.”
BIGGEST TAIL RISKS:
- The top “tail risk” investors fear is a second wave of the coronavirus with 49% of those surveyed citing that as a top concern.
- Permanent unemployment.
- Democratic sweep in the election.
