Global fund managers fear inflation more than covid-19; remain bullish on growth expectations


With US equities reaching fresh highs repeatedly, fund managers continue to back the S&P 500.
(Image: REUTERS)

Fund managers across the globe are over the fear covid-19 pandemic, according to Bank of America’s (BofA) recent fund manager survey. Among the 194 fund managers surveyed by the global investment bank, as many as 35% of the respondents believe inflation is now again the biggest risk for markets. Meanwhile, only 9% believe covid-19 to be the biggest tail risk for investors. Although inflation is seen as a risk, 69% of the respondents continue to remain bullish and expect an above-trend growth accompanying their expectation of above-trend inflation. 

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The bullish bias of fund managers is reflected well in the low cash levels they have been sitting on. BofA showed that cash levels are as low as 4.1%, implying that most of the investable money available has been invested. On-month basis, investors have moved towards late cyclicals such as energy. Stapes, REITs, banks, utilities, and materials have also seen a positive change in terms of investor positioning, according to the survey. On the other hand, Emerging markets, technology, and commodities have seen a negative trend. Allocation towards the technology sector is the third-lowest since 2006.

With US equities reaching fresh highs repeatedly, fund managers continue to back the S&P 500. 29% of the respondents believe S&P500 will outperform in 2021, down slightly from the previous month. Meanwhile, for bond yields, fund managers are of the view that when yields near 2%, stock markets could witness a correction.

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Further, the survey showed that fund managers have aligned their portfolios towards stocks with high-quality earnings and those with high-quality dividends. Smallcaps seem to be losing their shine, with only 14% favouring them in May, as against 35% in March this year. Meanwhile, value continued to remain the most favoured trade. “48% of FMS investors think value will outperform growth in the next 12 months. It continues to be the most favoured factor in the last 6 months with the exception of small-cap in February 2021,” BofA said. 

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Catching up on the recent euphoria around cryptocurrencies, as many as 43% of the fund managers said that ‘Long Bitcoin’ has overtaken ‘Long Tech’ as the most crowded trade. However, since the survey, Bitcoin has tumbled at least 18%. Technology has moved to the second spot, followed by Long ESG, and then short US treasuries.

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