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‘Ultra-bullish’ fund managers continue to focus on equities, with near-record overweightings in the asset class, but Bank of America Merrill Lynch (BoAML) has warned that now is the time to selling ever more popular technology.
BoAML’s monthly survey of global fund managers – which dates back to 1994 – found no shifts in optimism about the stock markets. Investors continue to be riskier, with the survey reporting that the net overweight in equities has almost reached an all-time high of 62%.
This reflects the positive expectations of fund managers for the performance of companies, the market and the global economy.
Half of professional investors believe a post-pandemic ‘V’ shaped recovery is in place, down from just 10% in May last year, while 37% believe a ‘V’ shaped recovery “ U ” or “ W ” will occur, down 75% in May of last year.
Companies are also expected to produce solid numbers, with 85% of fund managers expecting global earnings to improve over the next 12 months, which will have a knock-on effect on the stock market.
More than a third (34%) of fund managers believe the S&P 500 will outperform in 2021, with the majority ignoring fears that valuations are too tight in the US market – only 7% believe the market is in bubble territory , while 25% think the market is still in an early stage bull market and 66% think it is in an advanced stage bull market.
While the “cyclical rotation” of value stocks still has legs, fund managers have also fallen back on core growth technology. Being ‘long tech’ is still the most crowded trade with 32% of respondents, but that’s a significant drop from 80% of investors in September of last year.
Michael Hartnett, strategist at BoAML, said the latest survey showed “investors are now back at the helm of tech and cyclicals” and have mainly cut emerging markets and commodities.
He said fund managers were “ uber-optimistic but no more optimistic than in the first quarter, ” but he believes “ positioning is at its peak. ”
“Bearish adversaries playing ‘peak earnings per share’ should sell commodities, banks and tech,” Hartnett said.
“Bullish opponents who play on peak yields should buy emerging markets, commodities and utilities.”
Investors can continue to support stocks, but it is not without risk. Covid-19 may have dropped the top three concerns, but investors still have to deal with fears about the impact of a ‘taper tantrum’ on bond markets if the Federal Reserve tightens policy, a hike inflation and higher taxes.
Inflation and a subsequent rise in interest rates weigh heavily on the minds of investors, and 93% of fund managers expect higher inflation over the next 12 months – a record high. However, they predict that inflation will be accompanied by increased growth.
Hartnett said the survey indicated “higher growth, higher inflation continued to surpass the ‘Goldilocks’ peak” of higher growth, lower inflation “- the last time that happened, it was in December 2016.
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