Fund managers are not happy with shares, they have nowhere else to go, says BofA
The market is facing a peculiar anomaly: fund managers are quickly becoming disillusioned with global growth and returns amid a flurry of risks, but they are refusing to give up on equities, according to the latest Bank of America survey.
"The rare gap in fund managers' surveys between asset prices and fundamentals is growing," BofA strategists led by Michael Hartnett said on Tuesday. "Expectations for growth suggest equity allocations should decline, but risk-taking suggests investors are ignoring the macro economy."
Global growth and earnings prospects fell to their lowest levels in more than a year in September, according to a survey conducted from 3 to 9 September. However, the share of investors in equities fell only slightly to a net 50 per cent, while the share of respondents taking higher-than-usual risks rose to 9 per cent. Bonds have remained unpopular, according to the BofA, with a net weighting of 69% less than bonds .
The reason for this market positioning? BofA strategists say that falling macroeconomic optimism is good news for equities as it signals that lower rates will stay in place longer, leading to TINA (no alternative) for equities amid a lack of appetite for bonds.
And while 84% of respondents expect the US Federal Reserve to signal a tapering by the end of the year, expectations for the timing of the first rate hike have been pushed back to February 2023 from November 2022.
Although many large fund managers are still investing in equities, risk sentiment declined in September and the S&P 500 is poised for its first fall in eight months. Concerns over the withdrawal of stimulus, the Covid-19 outbreak and repression from China are weighing on sentiment.
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However, according to a BofA survey, the proportion of investors using hedging amid a sharp fall in equity markets in the next three months is the lowest since January 2018. 67% of respondents consider current market liquidity to be positive. the highest figure since before the global financial crisis in 2008.
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