After slashing cash piles by the most in a decade last month, fund managers with $570-B are hanging on to their dry powder amid this historic epic stock rally.
Investors surveyed by Bank of America Corp (NYSE:BAC) boosted average cash holdings to 4.9% this month from 4.7% in June, according to a week-long poll ended on 9 July. With global equity benchmarks up about 40% from this year’s lows, most managers see stocks overvalued and prefer navigating the volatility with bonds and commodities, according to BofA.
It is an about-face from June, when fund managers cut cash by the most since August 2009. This time around, just 14% of those surveyed expect the V-shaped economic recovery, compared with 44% who forecast a more gradual, U-shaped rebound.
“Investor sentiment remains cautious; consensus positioned for bad news on virus, macro, election,” BoA strategists wrote in a note Tuesday titled: “Wall Street’s $24-T rally yet to elicit ‘greed.’”
The BofA poll comes at an inflection point for markets as C-19 coronavirus cases rose in some US states and geopolitical tensions come back into focus. Many traders are torn between taking profits from a rally that has frayed nerves or staying in for more gains. After all the trend is your friend.
Institutional investors boosted their cash levels to 4% in July, and retail investors decreased their holdings to 4.8%. The allocation to commodities is now the highest since July 2011, according to the poll, while bond exposure has grown.
Among various asset classes, EU equities were most popular in July among polled fund managers, who also bought materials, tech, healthcare and commodities. Investors reduced their allocation in value stocks, banks and bonds, according to BofA.
With the US Presidential election looming, 34% of fund managers surveyed say they will not take any action, compared with 31% who say they will cut risk, while 15% plan to buy volatility.
BofA surveyed 188 fund managers as part of the global poll.
Other survey highlights include:
- Allocation to Eurozone stocks increased 9% to net 16% overweight, the largest increase in weighting of any region this month
- Allocation to US equities declined 1% to net 21% overweight, the US remains the survey’s most popular region
- Exposure to UK stocks declined 1% to net 30% underweight, the UK is the poll’s least popular region
- Most crowded trade is in US tech and growth stocks, followed by a long in gold and a long in cash
- Among polled investors, 54% say the Fed will not introduce yield curve control in September
- Top tail risk is 2nd wave of C-19, followed by the US Presidential election
- Global corporate earnings bets climbed to net 36% of investors expecting profits to improve in next 12 months
Have a healthy day, Keep the Faith!