Global fund managers are exhibiting peak optimism, reaching levels not seen since June 2021, according to Bank of America’s latest survey. This heightened bullishness suggests it may be more challenging for asset prices to rise in the current quarter, as investor positioning already reflects this sentiment. The bank’s broadest measure of investor sentiment, encompassing cash levels, equity allocation, and global growth expectations, edged up to 8.2 from 8.1 in February. The survey encompassed responses from 162 participants managing $US440 billion ($622 billion) in assets.
Cash levels held by fund managers saw their first increase in seven months, rising to 3.4 per cent from a record low of 3.2 per cent in January. The BofA Bull & Bear Indicator climbed to 9.5, further reinforcing a contrarian ‘sell’ signal that has been in place since December 17. ‘Long gold’ remained the most crowded trade for the second consecutive month, cited by 50 per cent of respondents. Concerns are emerging around capital expenditure from ‘hyperscalers’. These are companies like Alphabet (Google), Amazon, Meta Platforms and Microsoft which are planning to spend approximately $US650 billion ($920 billion) to enhance their AI initiatives by 2026.
When asked about the biggest tail risk for markets, investors identified an ‘AI bubble’ (25 per cent), followed by ‘inflation’ (20 per cent), and a ‘disorderly rise in bond yields’ (17 per cent). Regarding the most likely source of a credit event, 43 per cent of investors pointed to ‘private equity/private credit,’ while 30 per cent cited ‘AI hyperscaler capex.’ A shift in investor sentiment suggests doubts about AI spending and potential earnings impact for tech companies.
In terms of positioning, investors, for the first time in 10 months, anticipate small cap stocks to outperform large caps and favour value over growth. They are now almost evenly overweight equities and underweight bonds. This month saw increased allocation to energy, materials, and consumer staples, with reduced positions in US equities, tech, and the US dollar. Survey respondents are most overweight banks, pharma, and industrials, and most underweight insurance, discretionary, and staples.
