Confidence in the health of the global economy is falling among fund managers but this is yet to stop them from keeping a pro-risk tilt to their portfolios, the latest Bank of America Global Fund Manager Survey has found. 
Analysts at Bank of America said the October edition of the closely watched report is the “least bullish” survey since October 2020, as fund managers worry about the economy and rising inflation.
The survey polled 380 asset allocators running a total of $1.2trn between 8 and 14 October to gather their views on markets, the global economy and positioning. Below, we highlight five charts that show a bullish portfolio stance despite waning confidence in growth.
Net % of fund managers expecting stronger economy
Source: BofA Global Fund Manager Survey
More fund managers are now expecting the economy to weaken over the coming 12 months than are expecting it to strengthen.
During October, there was a 19 percentage point decrease in fund managers’ economic expectations, leaving a balance of 6% of asset allocators eyeing a weaker economy.
This is the first time economic expectations have turned negative since April 2020, when the world was in the early stages of the Covid-19 pandemic.
Net % of fund managers saying global profits will improve
Source: BofA Global Fund Manager Survey
Meanwhile, managers appear to be bearish on corporate profits with a net 15% saying they think profit growth will slow over the next 12 months.
This represents a 27 percentage point fall on last month’s survey and is the first time since May 2020 that more managers have forecasted a drop in profits rather than a rise.
Other signs that fund managers are becoming less bullish on the state of the economy include a fall in the number of investors expecting ‘boom’ conditions (above-trend growth and above-trend inflation), a rise in those anticipating ‘stagflation’ (below-trend growth and above-trend inflation) and a narrowing in the ‘transitory’ versus ‘permanent’ expectations for inflation.
Fund managers’ biggest tail risks
Source: BofA Global Fund Manager Survey
Indeed, inflation remains the biggest ‘tail risk’ cited by investors in October’s BofA Global Fund Manager Survey. Some 48% of managers said this was their main concern at the moment – a significant increase on the previous month.
Asset bubbles and the delta Covid variant were of less concern than in September, while China and a taper by the US Federal Reserve were the tail risks gaining more attention this month.
Net % of fund managers overweight equities vs net % predicting a stronger economy
Source: BofA Global Fund Manager Survey
However, while this paints fund managers as being in a pessimistic mood, this only appears to concern the economy at the moment – with many remaining bullish when it comes to markets.
The above chart highlights the growing disconnect between asset allocators’ confidence in the economy and their allocation to stocks.
A net 50% of the investors participating in the BofA Global Fund Manager Survey are currently overweight equities. While this is the lowest since November 2020, it remains bullish by long-term averages.
At the same time, the allocation to bonds has fallen to a net 80% underweight – which is the largest underweight ever recorded by Bank of America – while the pro-risk sentiment is further illustrated by a 10 percentage point jump in the allocation to commodities, taking it to a net 28% overweight.
% saying overweight - % saying underweight
Source: BofA Global Fund Manager Survey
A look at the allocations to the various equity sectors also shows how fund managers continue to be bullish on markets.
There has been a big rotation out of utilities, staples and discretionary and into banks, pharma and energy stocks.
This has led to banks becoming the most overweighted sector, with the highest overweight since May 2018. Energy is in third place, on the back of the surging oil price.