Fund managers around the world are staying underweight stocks while running an overweight to bonds amid dampened sentiment and the risk of a recession.
The June edition of the Bank of America Global Fund Manager Survey – which polled 247 asset allocators running a total of $708bn – found that sentiment among professional investors remains low, despite rising stock markets in 2023.
Fund manager sentiment
Source: Bank of America Global Fund Manager Survey, Jun 2023
The chart above is broad measure of the sentiment of fund managers who participated in the survey, based on their cash positions, equity allocations and economic growth expectations.
Michael Hartnett, investment strategist at Bank of America, said: “It remains stubbornly low… AI ‘baby bubble’, FOMO [fear of missing out], technical and so on can lift this, but fundamentally asset allocators saying we need meaningful downward surprise to rates, and/or meaningful upward surprise to growth (no recession).”
Most investors, however, are expecting the global economy to weaken over the coming 12 months as higher interest rates are kept in place to force inflation down.
Net % of investors expecting stronger economy
Source: Bank of America Global Fund Manager Survey, Jun 2023
A net 62% of investors expect a weaker economy in next 12 months, which is a slight improvement on May’s findings. In addition, a net 87% of investors expect lower global consumer prices inflation over the coming year.
The survey also found that 64% expect a ‘soft landing’ (or an economic slowdown that avoids recession), 26% see a ‘hard landing’ (or a slowdown that leads to recession) and just 3% expect ‘no landing’ at all.
But Hartnett added: “Investors remain bearish on economic growth. Very few think the economy will avoid some sort of recession in next 12 months, but start of recession has been pushed out to Q4 23 or Q1 24.”
Global fund managers have been moving out of cash for the past eight months or so, the survey found. The average cash allocation was taken to 5.1% in June - down from 5.6% in May and 6.3% in October 2022.
“Cash is still high-ish but no longer uber-high,” Hartnett said.
Month-on-month change in positioning by asset type
Source: Bank of America Global Fund Manager Survey, Jun 2023
But despite cash allocations falling to a 19-month low, fund managers seemed unwilling to add risk. This month they have also taken stocks to a five-month low and commodities to a 37-month low, with real estate and alternatives being the only assets added to.
On the specific moves with equities, fund managers rotated into Japan, the US, telecoms, healthcare and banks while selling down consumer staples, emerging markets and eurozone stocks.
This final chart shows fund manager positioning relative to the average positioning of the past 20 years.
Fund manager positioning vs history
Source: Bank of America Global Fund Manager Survey, Jun 2023
Although they trimmed bonds in June, investors remain overweight the asset class and Hartnett explained that this is largely down to investment-grade bonds. Fund managers are most overweight investment-grade bonds versus high-yield bonds in eight years, the Bank of America Global Fund Manager Survey found.