Active fund managers are piling into cash as the outlook for global growth drops to record lows and worries over stagflation fester, according to results of a survey conducted by Bank of America Corp. Cash levels among investors reached the highest they’ve been since September 2001, with BofA describing the results as “extremely bearish.”
Overall, active managers are very long cash, commodities, healthcare, and consumer staples, and very short technology, equities, Europe, and emerging markets.
“Unlike index-based strategies that need to be fully invested, funds run by active managers have the ability to shift some assets to cash to ride out the market volatility and wait for better buying opportunities,” said Todd Rosenbluth, Head of Research at VettaFi. “Such cash balances can also provide some downside protection.”
Among the fund managers surveyed this month, hawkish central banks are seen as the biggest headwind risk, followed by a global recession. Meanwhile, stagflation fears have risen to the highest since 2008.
Michael Hartnett, chief investment strategist at BofA Global Research, wrote that investors believe stocks are susceptible to an impending bear market rally, but ultimate lows have not yet been reached. With more rate increases expected from the Federal Reserve, the market isn’t yet at “full capitulation.”
Fears of a recession exceeded the tail risks from inflation and the war in Ukraine. However, Bloomberg is reporting that strategists such as Kate Moore at BlackRock Inc. and Marko Kolanovic at JPMorgan Chase & Co. have suggested that fears of an imminent recession are overblown.
Other findings in the May survey include:
- Fund managers are most underweight equities since May 2020, at net 13% (versus 6% overweight last month).
- Investor positioning turned the most defensive since May 2020, with combined net 43% overweight in utilities, staples, and healthcare.
- Monetary risk has overtaken geopolitical risk as the biggest potential risk to financial market stability.
- The most crowded trades among the managers surveyed are long oil/commodities (28%), short U.S. Treasuries (25%), long tech stocks (14%), long Bitcoin (8%), long ESG (7%), short China stocks (7%) and long cash (4%).
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