Bearish on the outlook for stocks, long cash, credit, quality and short the EU that seems to be the prevailing view of fund managers surveyed by Bank of America at the beginning of this month.
One hundred and ninety-five panellists with a total of $537 billion in assets under management took part in the bank’s regular Global FMS survey, giving one of the most diverse and wide-ranging survey results around.
Funds’ cash allocation increases, highest since 2001
The takeaways from the study are quite clear. Respondents reported cash levels of 5.8%, up from 5.7% in June the highest since November 2001 indicating that many fund managers believe there are few if any assets worth buying in this market.
What’s more, investor buying of protection against a sharp decline in the stock market has reached a record high, which when combined with the fact that cash allocations are now at the highest level in more than two decades paints a very pessimistic picture of asset managers. The survey also revealed that for the first time in four years, equity managers are underweight equities — yet another reason to be concerned about the outlook for the market.
Still, only 17% of the respondents think that a recession is likely. Growth and profit expectations are flat for the year ahead, but no significant decline in either is expected. The most crowded trades are quality stocks, utilities and stocks with bond-like qualities that will benefit from further easing by central banks and are likely to have the least downside in the event of a recession. Other crowded trades are long US/EU credit and short EU banks.
Perhaps one of the most surprising revelations from Bank of America’s survey is the fact that 39% of respondents now expect “helicopter money” to emerge in one form or another during the next 12 months. The last time the survey was taken only 27% of the respondents believed that central banks would resort helicopter money.
So, it is clear that the respondents to Bank of America’s survey like cash, quality stocks and credit but what do they not like? Well, the standout short is UK equities.
The number of investors looking to short UK equities is at its highest level since December 2009 according to the survey, implying that the outlook for UK stocks is less than pretty. It seems investors are also avoiding Europe and Japan. The survey showed that investors now have their first underweight position in European equities in three years and the largest underweight in Japanese equities for more than three years. Emerging market and US equities have the largest overweight positions in two years and 17 months respectively. Banks are severely disliked with the biggest underweight of banks since 2012. Meanwhile, industrials overweight are at a two-year high and last month saw the largest month-on-month jump in tech exposure for two years.